(
20points) Comparative Statics Explain how the following eventswill affect the demand and supply curves for Gasoline Car. In eachcase explain whether the demand and supply curves will (i) move tothe left; (ii) move to the right; or (iii) not move. a. (10 points)The price of gasoline engine falls. i. How will this affect thedemand curve for the gasoline car? EXPLAIN WHY (3Points) ii. Howwill this affect the supply curve? EXPLAIN WHY (3Points) iii. Showhow this affects the equilibrium price and quantity. Make sure yourdemand and supply curves follow the law of demand and supply, thecurves and axes are appropriately labeled, arrows indicatingmovement of curves are shown, and the old and new equilibriumprices are quantities are clear. (4Points) b. (10 points) The priceof electronic car decreases i. How will this affect the demandcurve for the good listed above? EXPLAIN WHY(3Points) ii. How willthis affect the supply curves? EXPLAIN WHY (3Points) iv. Show howthis affects the equilibrium price and quantity. Make sure yourdemand supply curves follow the law of demand and supply, thecurves and axes are appropric labeled, arrows indicating movementof curves are shown, and the old and new equilib prices arequantities are clear. (4Points)
(2)/(5)( 20 points) Comparative Statics Explain how the followingevents will affect the demand and supply curves for Gasoline Car.In each case explain whether the demand and supply curves will (i)move to the left; (ii) move to the right; or (iii) not move. a. (10points) The price of gasoline engine falls. i. How will this affectthe demand curve for the gasoline car? EXPLAIN WHY (3Points) ii.How will this affect the supply curve? EXPLAIN WHY (3Points) iii.Show how this affects the equilibrium price and quantity. Make sureyour demand and supply curves follow the law of demand and supply,the curves and axes are appropriately labeled, arrows indicatingmovement of curves are shown, and the old and new equilibriumprices are quantities are clear. (4Points) b. (10 points) The priceof electronic car decreases i. How will this affect the demandcurve for the good listed above? EXPLAIN WHY(3Points) ii. How willthis affect the supply curves? EXPLAIN WHY (3Points) iv. Show howthis affects the equilibrium price and quantity. Make sure yourdemand supply curves follow the law of demand and supply, thecurves and axes are appropric labeled, arrows indicating movementof curves are shown, and the old and new equilib, prices arequantities are clear. (4Points)
(2)/(5)(10 Points) Economic and Accounting Profits You are currentlyworking as a Senior Economist for the Congressional Budget Officein Washington DC making $140,000 per year. Your lifelong ambition,however, has been to open your own cupcake store. You decide toquit your job as an economist to open your dream store near theRiver Walk in San Antonio. You estimate that you will be able tosell 8,000 cupcakes per month at a price of
$4per cupcake and 6,000 cups of coffee per month at a price of
$3.00per cup. You will have to pay monthly rent of
$8,000for renting the retail space and will have other cash costsof
$5,000per month (for utilities, part-time help, taxes etc.). Theingredients will cost you
$2.00per cupcake and
$1.00per cup of coffee. a. Calculate your monthly revenue. (1 Points)b. Calculate total implicit costs (monthly) (1 Points) c. Calculatetotal explicit costs (monthly) (1Points) d. Calculate monthlyaccounting profits (2Points) e. Calculate monthly economic profits(2 Points) 3 / 4 f. Would an economist recommend that you startthis business? Why or why no Points)
