ECON 202: Demand and supply model for a business firm producing motorcycles.

HW#1- ECON 202
2171
1.Answer the following questions based on the demand and supply model for a business firm producing
motorcycles. Assume that 427 motorcycles is the optimal and most profitable level of production
for the firm. All dollars are in thousands.
(a) What are the equilibrium price and quantity at the medium level of demand (DM)?
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(b) What will be the equilibrium price and quantity if there is a demand shock that unexpectedly
lowers demand (DL)?
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(c) What will be the equilibrium price and quantity if there is a demand shock that unexpectedly
increases demand (DH)?
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(d) What can you conclude will happen to prices and output when this model is shocked by changes
in demand?
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2. Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are
in billions.
Consumption of employees $ 194.2
U.S. exports of goods and services 30.5
Consumption of fixed capital 24.5
Government purchases 46.7
Taxes on production and imports 14.4
Net private domestic investment 39.4
Transfer payments 13.9
U.S. Imports of goods and services 17.5
Personal taxes 40.5
Net foreign factor income 14.9
Personal consumption expenditure 231.8
Statistical discrepancy 0
0Price ($)
30
427
DH
Motorcycle
s
20
10
D DL M
S
a)
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b)
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c)
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3. A small economy starts the year with $1012700 in capital. During the course of the year, gross investment is
$162700and depreciation is $51000. How big is the economy’s stock of capital at the end of the year?
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4. The following data show nominal GDP and the appropriate price index for several years. Compute
real GDP for each year and indicate whether you have “inflated” or “deflated” nominal GDP in
finding real GDP. All GDP are in billions.
Year Nominal GDP Price level index Real GDP
Inflated (I)
Deflated (D)
1 $230 230 _____ _____
2 243 231 _____ _____
3 180 212 _____ _____
4 276 223 _____ _____
5 229 103 _____ _____
6 93 129 _____ _____

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