Question

Need answers to both questions

ECO 111: Macroeconomics Problem Set 2 Please answer all questions and submit your answer by 9:30 AM on Monday, November 4. Please clearly label all pages you submit with your name. Please fasten all pages you submit by, eg, stapling them or paperclipping them together Please do not laminate. This assignment assesses learning outcomes 3 and 4 from the syllabus 1. (4 points) The table below describes the supply and demand schedule for ice cream in a small town during the winter. (a) What is the equilibrium price and quantity? (b) If the price is set at $3 per quart, what will happen in this market? Predict long-term effects in addition to the immediate market condition (c) When the summer arrives, what do you expect to happen in this market? Predict how the equilib rium will shift, to the best of your ability given the information you have. Briefly explain. Price Quantity Quantity (per Quart) Demanded (Quarts) Supplied (Quarts) 4 60 60 SO 100 20 2. (4 points) Using 2015 as the base year, calculate nominal GDP real GDP, and the GDP price deflator for each year. Year Quantity of Price of Strawberries Strawberries 2015100 3.00 20161254.00 2017150 5.00 Quantity of Price of Cream (pints) Cream (per pint) 200 Nominal Real GDP GDP GDP Deflator 200 300 3.00

Answer 1

Solution

1)

(a)

Equilibrium point is determined where

Quantity demanded=Quantity Supplied

From the given table above

The equilibrium quantity demanded and quantity supplied is equal to 60 and price is equal to 4

(b)

At price equal to 3 ;

The equilibrium quantity demanded and quantity supplied is equal to 80 and 40 respectively.

At this point quantity demanded is more than quantity supplied. In the long run it may lead to shortage of supply in the market with the prevailing conditions.

(c)

At the time of Summer demand for ice cream will rise rise and also it will lead shift in the equilibrium point in the market. The rise in quantity demanded will results in fall in prices.

2)

​​​​​Nominal GDP(2015) = Quantity (2015)*Price (2015)

= (100*3) + (200*2)=700

Nominal GDP (2016) = Quantity (2016)*Price (2016)

= (125*4) +(400*2.5) =1500

Nominal GDP (2017) =Quantity (2017)*Price (2017)

= (150*5) + (500*3) =2250

Using 2015 as base year price

Real GDP(2015) =Quantity (2015)*Price (2015)

= (100*3) +(200*2) =700

Real GDP (2016) = Quantity (2016)*Price (2015)

= (125*3) + (400*2)=1175

Real GDP (2017) =Quantity (2017)*Price (2015)

= (150*3) +(500*2)= 1450

GDP Deflator (2015) = Nominal GDP(2015) /Real GDP *100

= 700/700*100= 100

GDP Deflator(2016) = 1500/1175*100=127.6596

GDP Deflator (2017) = 2250/1950*100 =155.1724

Year	Nominal GDP	Real GDP	GDP Deflator
2015	700	700	100
2016	1500	1175	127.6596
2017	2250	1450	155.1724