Economics Homework: Economic Principles, Policies, and Analysis

This economics homework assignment covers a range of topics including elasticity of demand, market structures like perfect competition and monopolies, and the impact of government policies. The assignment analyzes price elasticity using the midpoint formula and explores incentives for firms in competitive markets. It also delves into profit maximization for monopolists, the determination of economic profit, and market equilibrium. Furthermore, the homework addresses macroeconomic concepts such as GDP, including nominal and real GDP, and the GDP deflator, as well as the rule of 72. It also includes an analysis of the money supply, the role of the Federal Reserve, and the effects of fiscal and monetary policies, along with different schools of economic thought. Finally, the assignment examines the definition of poverty and the impact of early childhood interventions on poverty reduction.

Week 2 Homework
(1) (12 points) Consider the following information: the market price increases
from $2 to $3 causing the quantity demanded to fall from 100 units to 50
units.
a. What is the own-price elasticity of demand using the mid-point
formula?
Answer: Price elasticity of demand = (50-100)/ [(50+100)/2]
(3-2)/[(3+2)/2]
= -.66 / 0.4
= - 1.65
b. Assume the market is perfectly competitive. Does a firm have any
incentive to raise it’s price above $3? Why or why not.
Answer: If the perfectly competitive firm enhances the numbers of
unit sold at the provided price, in that case the total revenue would
also be increased. Further, when the price enhances for each unit sold,
in that case the total revenue will also increase. In this way, the firm
has incentive to raise price more than $ 3.
c. What is the firm own price elasticity of supply, assuming the market is
perfectly competitive?
Answer: The perfectly competitive firm is considered as price taker. It
means it should take equilibrium price at which it sell good. A firm own
price elasticity of supply is regarded as change in percentage of
quantity supplied divided by change in percentage of price. It states
that the responsiveness of quantities supplied to the change in prices.

Consider the graph above.
(2) (4 points) What is the profit maximizing price and quantity for a monopolist
(for example, P1 and Q3 -- this is not the answer).
The profit-maximizing quantity will occur where MR = MC. Further, the profit
maximization price will take place at lowest quantity.
(3) (2 points) If the firm is earning no economic profit, what must the ATC be

When the monopoly will earn zero economic profit, then price will be
equivalent to the minimum point of average total cost curve or ATC curve.
(4) (4 points) Assume the ATC for the firm is P3. Write an expression for the
profit for the firm.
when ATC for firm is P3, then it will be negative economic profit for the firm
(5) (4 points) If this firm were operating in a competitive market, what is the
market equilibrium price and quantity?
In the competitive market, the equilibrium price can be determined by the
procedure of interaction between market supply as well as market demand. At
the equilibrium price, the supplied quantity is similar to the demanded quantity.