Economics for Policy, Planning, and Development

Answer the questions.

PPD 501A – Economics for Policy, Planning and Development

Spring 2021

Problem Set 1

Due before 6pm Feb. 4, PST  

For questions that involve calculations, show your work.  Be sure that you turn in your own work in your own words.    Copying another person’s answer will be considered cheating.  Be sure that you understand how to solve or answer each question as these are the types of questions that will appear on exams. 

1. (6 points) State whether each of the following questions is positive or normative. Explain briefly.

a) The US Government should increase the subsidy to low income people.

b) An increase in advertising by one major automobile company will affect the sales of the other automobile companies.

c) Taxes on wealthy citizens of the United States are too high.

2. (9 points) Use supply and demand curves to illustrate the effect of each of the following events on the price and quantity of graduate education pursued and provided.

a)      An increase of salary in the current job market

b)      A decrease of your income

c)      An expansion of University capacity

3. (9 points) Suppose the demand and supply curves of world oil market are given by:

Qd= 24.08 – 0.06P

QS = 21.74 + 0.07 P

Where Q is measured in billion barrels and P is measured in dollars per barrel.

a)      Calculate the equilibrium price

b)      Calculate the price elasticity of demand at the equilibrium point.

c)      If the price is set at 17. What would happen to the market? Is there a shortage or surplus? If so, how much?

1. 4.      (4 point) Bonus:  Explain the main idea of the Classical(or Neoclassical) school of economic thought and list at least two notable economists associated with this school.