I. Consider the following demand and supply curves:
QD = 40 – 15P
QS = 6 + 2P
1. Use these two equations to solve for the market clearing price and quantity.
2. Draw the diagram.
3. In the diagram, indicate Consumer Surplus.
4. In the diagram, indicate Producer Surplus.
II. An entrepreneur has the opportunity to start a firm. The entrepreneur’s current income is $300,000. Should the entrepreneur start the firm? Use the following data to compute the profit from the start up. Suppose that the entrepreneur knows that:
Firm revenue: $6,000,000
Wage Costs: $4,500,000
Capital Costs (machines, buildings, etc.): $1,000,000
- Should the entrepreneur start the firm? Hint: Compute profit.
- Suppose that capital costs rise to $5,000,000 all else the same. Should the entrepreneur start the business? Explain.
III. Please use FRED: http://research.stlouisfed.org/fred2/ (Links to an external site.)
A. Plot GDP for the U.S.
- Real Gross Domestic Product from 1947 to present (Billions of Chained 2012 Dollars, Seasonally Adjusted)
- Gross Domestic Product from 1947 to present (Billions, seasonally adjusted)
- Define each series and explain the difference between real and nominal GDP.
- Explain what the 2012 index means.
B. Plot inflation for the U.S.
- Consumer Price Index: All Items for the U.S. City Average from 1947 to present (annual, seasonally adjusted), CPIAUCSL.
- Personal Consumption Expenditures Excluding Food and Energy (Chain type Price Index): All Items for the U.S. from 1959 to present (Index 2012, seasonally adjusted, monthly), PCE.
- Producer Price Index, all commodities, PPIACO.
C. Plot unemployment for:
- Civilian unemployment rate from 1948 to present (percent, seasonally adjusted, monthly).
- Unemployment Rate in Iowa from 1976 to present (seasonally adjusted, monthly). Add this series (IAUR) to national series.
- Labor Force Participation Rate (CIVPART) and age groups (16-19 yrs, 20-24 years, 25-54 years, 55 years and over) and by gender.
- Briefly explain the graphs.
