ECON 180 - Regulation and Antitrust Policy Drake University, Spring 2013 William M. Boal Course page: www.cbpa.drake.edu/econ/boal/180 Blackboard: bb.drake.edu Email: william.boal@drake.edu

Demand and Supply

### Version A

I. Multiple choice [3 pt each: 33 pts total]

(1)b. (2)c. (3)c. (4)b. (5)b. (6)c. (7)a. (8)a. (9)c. (10)b. (11)b.

II. Problems

(1) [Intro to antitrust: 6 pts] Antitrust policy is enforced by two U.S. federal agencies: the Antitrust Division of the Justice Department, and the Federal Trade Commission.

(2) [Demand and supply, simultaneous equations: 22 pts]

1. Q* = 600 and P* = \$4.
2. Total revenue = \$2400.
3. Demand curve has P-intercept at \$10, Q-intercept at 1100, and slope of -1/100; supply curve has P-intercept at \$2 and slope of 1/300.

(3) [Equilibrium: 8 pts]

1. excess demand.
2. \$7.
3. 3 units.
4. \$21.

(4) [Price elasticity of demand: 8 pts]

1. -0.4.
2. inelastic.
3. increase.
4. 3 percent.

(5) [Price elasticity of demand: 10 pts]

1. increase.
2. 3 percent.
3. decrease.
4. 6 percent.
5. inelastic.

(6) [Price elasticity of supply: 8 pts]

1. increase.
2. 2 percent.
3. increase.
4. 8 percent.

III. Critical thinking [5 pts]

This argument does not make sense. If many hotels are being built, then supply of hotel rooms will shift right. This will lower, not raise, the equilibrium price of hotel rooms. Consumers will benefit, not suffer, from lower prices. (Full credit requires graph showing supply shift and consequent decrease in price.)

### Version B

I. Multiple choice [3 pt each: 33 pts total]

(1)d. (2)b. (3)b. (4)a. (5)a. (6)d. (7)a. (8)e. (9)b. (10)a. (11)a.

II. Problems

(1) [Intro to antitrust: 6 pts] Antitrust policy is enforced by two U.S. federal agencies: the Antitrust Division of the Justice Department, and the Federal Trade Commission.

(2) [Demand and supply, simultaneous equations: 22 pts]

1. Q* = 400 and P* = \$6.
2. Total revenue = \$2400.
3. Demand curve has P-intercept at \$10, Q-intercept at 1100, and slope of -1/100; supply curve has P-intercept at \$4 and slope of 1/200.

(3) [Equilibrium: 8 pts]

1. excess supply.
2. \$3.
3. 5 units.
4. \$15.

(4) [Price elasticity of demand: 8 pts]

1. -0.2.
2. inelastic.
3. decrease.
4. 4 percent.

(5) [Price elasticity of demand: 10 pts]

1. decrease.
2. 1 percent.
3. increase.
4. 3 percent.
5. inelastic.

(6) [Price elasticity of supply: 8 pts]

1. increase.
2. 4 percent.
3. increase.
4. 14 percent.

III. Critical thinking [5 pts]

(Same as Version A.)