ECON 202 - Homework 4
Due Friday, October 25 (On Canvas)
You may work with others but you must submit your OWN work. You may submit your
answers on this sheet, or a separate sheet, whichever is easier. Please make sure your work
is readable.
1. Consider the market for bicycles:
$Q^D = 1500 - 3P$
$Q^S = -500 + 5P$
If a price floor is set at $300, will there be a surplus or a shortage? Of how many units? Is this price
floor binding? (2 points)
2. Consider the market for headphones:
$Q^D = 340 - 8P$
$Q^S = -80 + 4P$
If a price ceiling is set at $20, will there be a surplus or a shortage? Of how many units? Is this price
ceiling binding? (2 points)
3. Give an example of a public good, a private good, a common resource good, and a club good. (4
points)
4. Refer to the following table.
Q \text{ Internal Cost } \text{ External Cost } P
1 $2 $4 $14
2 $4 $4 $12
3 $6 $4 $10
4 $8 $4 $8
5 $10 $4 $6
6 $12 $4 $4
a. At which price and quantity does the market equilibrium occur? (2 points)
b. At which price and quantity is the social optimum? (2 points)
