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Tutorial 1 Yang

This document contains a tutorial on demand, supply and equilibrium for Economics 90034 taught by Lecturer Svetlana in March 2016. It provides examples and graphs to illustrate aggregate demand and supply, consumer surplus, interest rate ceilings, and the impacts of rationing. The tutorial also covers exchange rates and how changes in subsidies, demand, interest rates, and trade agreements impact Australia's exchange rate with the US dollar. Contact information is provided for tutor Yang Song.

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Jason
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© © All Rights Reserved
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62 views15 pages

Tutorial 1 Yang

This document contains a tutorial on demand, supply and equilibrium for Economics 90034 taught by Lecturer Svetlana in March 2016. It provides examples and graphs to illustrate aggregate demand and supply, consumer surplus, interest rate ceilings, and the impacts of rationing. The tutorial also covers exchange rates and how changes in subsidies, demand, interest rates, and trade agreements impact Australia's exchange rate with the US dollar. Contact information is provided for tutor Yang Song.

Uploaded by

Jason
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Administration

Economics of Finance
Lecturer: Svetlana
Tutors
Yang Song
E-mail address: yang.song@unimelb.edu.au

Yang Song (ECON90034) Tutorial 1 March 2016 1 / 15


1 Demand, supply and equilibrium
Question information

Perfectly competitive with no regulation

QLD = 30 i
QHD = 60 2i
QTS = 6i

Yang Song (ECON90034) Tutorial 1 March 2016 2 / 15


1 Demand, supply and equilibrium
(a) Aggregate demand supply and equilibrium

Total demand

QTD = QL + QH
= 30 i + 60 2i
= 90 3i

Total Supply
Q S = 6i
Yang Song (ECON90034) Tutorial 1 March 2016 3 / 15
1 Demand, supply and equilibrium
(a) Aggregate demand supply and equilibrium

Equilibrium interest rate


QS = 6i = 90 3i = QTD
i = 10
Equilibrium quantity of loan
QTD = 90 3i = 90 3 10 = 60

Yang Song (ECON90034) Tutorial 1 March 2016 4 / 15


1 Demand, supply and equilibrium
(b) Individual Consumer Surplus

Low income group


QLD = 30 i = 20
1
CSL = 20 (30 10) = 200
2
High income group
QHD = 60 2i = 40
1
CSH = 40 (30 10) = 400
2
Total CS &PS
CST = CSH + CSL = 400 + 200 = 600
1
PS = 10 60 = 300
2
Welfare
W = CS + PS = 600 + 300 = 900
Yang Song (ECON90034) Tutorial 1 March 2016 5 / 15
1 Demand, supply and equilibrium
(b) Individual Consumer Surplus

Graph

Yang Song (ECON90034) Tutorial 1 March 2016 6 / 15


1 Demand, supply and equilibrium
(c) interest rate ceiling

Quantity supply
Q S = 6i = 6 8 = 48
Quantity demand

QTD = 90 3i = 90 3 8 = 66

Excess demand

ED = 66 48
= 18

Yang Song (ECON90034) Tutorial 1 March 2016 7 / 15


1 Demand, supply and equilibrium
(c) interest rate ceiling

Graph

Yang Song (ECON90034) Tutorial 1 March 2016 8 / 15


1 Demand, supply and equilibrium
(d) Rationing

High income group


QHTrade = 60 2i = 60 2 8 = 44
1
CSH = 44 (30 8) = 484
2
Low income group
QLTrade = 48 44 = 4
1
CSL = 4 (22 + 18) = 80
2
Total CS
CST = CSH + CSL = 484 + 80 = 564
Total PS
1
PS = 8 48 = 192
2
Welfare
W = CS + PS = 564 + 192 = 756
Yang Song (ECON90034) Tutorial 1 March 2016 9 / 15
1 Demand, supply and equilibrium
(d) Rationing

Consumer Surplus

Yang Song (ECON90034) Tutorial 1 March 2016 10 / 15


1 Demand, supply and equilibrium
(d) Rationing

Producer Surplus

DWL
900 756 = 144

Yang Song (ECON90034) Tutorial 1 March 2016 11 / 15


2 Exchange Rate
(a) US decreases subsidies to sugar farmers

Yang Song (ECON90034) Tutorial 1 March 2016 12 / 15


2 Exchange Rate
(b) US decrease in demand to visit Australia

Yang Song (ECON90034) Tutorial 1 March 2016 13 / 15


2 Exchange Rate
(c) Interest rates increase in Australia

Yang Song (ECON90034) Tutorial 1 March 2016 14 / 15


2 Exchange Rate
(d) Free Trade agreement between AUS & US

Yang Song (ECON90034) Tutorial 1 March 2016 15 / 15

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