ECON 105 D100 Principles of Macroeconomics

Summer 2021

Assignment 02
Sarah Abraham
Due by Friday, June 04, 11:59 PM (Vancouver Time).
Late submission:

• less than 24 hrs late = 2 points deducted

• 24-48 hrs late = 4 points deducted
• more than 48 hrs late = 0 points awarded

1. The demand for ECON 105 at a local university is given by P = 750 – 0.5Q, where P is tuition
($/course) and Q is the number of students who would like to enroll. The supply is given by Q =
270 + 0.05P, where P is tuition ($/course) and Q is the number of seats in the class that the
university offers.

a. Find the equilibrium tuition and enrollment. Show your work. (2)

Given p=750-0.5Q
Q = 270 + 0.05P Therefore Qd=1500-2P
Qs=270+0.05P

The equilibrium: Qd=Qs

P=$600 per course
Q=300 student
1500-2P=270+0.05P
2.05P=1230

b. If the local government passed a regulation that prohibits charging tuition above
$540/semester, what would be the enrollment and how many people would be on the
waiting list (the waiting list is made of the students who would like to enroll but can’t
because there aren’t enough seats)? Show your work. (2)
If P=$540 per semester
Qd=420 students
Qs=297 students
Shortage in class seats (number of students on the waiting list) =420-297=123 students
 c. There are waiting lists for many classes at SFU. In what way does it suggest that the
tuition is “too low?” (1)
The tuition is “too low” can be in the form of easy entry to class criteria. Because the tuition is “ too low”
the number of student who are willing to register for the class will be very high and therefore this will
result in a waiting list for the classes at SFU.

d. (this is an open-end question) If I ever hear people complaining about tuition, it’s always
about tuition being “too high,” not to low. In what sense is tuition “too high?” (1)

When the tuition is “too high” for students then they will perceive marginal cost of tuition is very
low. Personally, I tend to apply for student loans and many students are in the same situation as
me. The major cost of education is accommodation (residency on campus), food and
transportation to and from the campus (parking can be costly). For the university, an extra
student within the total capacity should cost very low. However, tuition fees are high. In regard
sense, students are not entirely wrong when they complain about tuition being “too high”.

e. Do you think a government-mandated lower tuition would make those who complain
about +too high” tuition better off or worse off? Explain. (2)
A government-mandated lower tuition will make those students who complain about tuition being “too
high” worse off. This in the sense that the government mandate will ensure long waiting lines. Those who
complain about high tuition, will find something else now to complain about such as shortages and
quality of teaching. The tuition price here acts as a mechanism to balance demand and supply. The tuition
being “too low” will not necessarily solve the problem.

2. For each of the following two events, perform comparative statics analysis (draw a demand and
supply diagram, show which curve shifts and in which direction, and determine how the market
price and quantity would change) in the market for the cars with the internal-combustion engine.
Also, for each of the two, explain your reasoning in words.

a. Electric cars become much cheaper.

Electric cars are an alternative for cars with internal combustion engine. These cars are friendly for he
environment. When electric cars become cheaper people will start buying more of electric cars and
choose it for cars with internal combustion engine. Due to this the demand curve will shift backwards and
the equilibrium quantity and price will fall
 b. Gasoline fuel becomes much cheaper.

Internal combustion cars run on gas thus it can be said that gasoline is a complementary good for
such type of cars. If gasoline becomes cheaper consumers will find it more economical to use
internal combustion cars and thus the demand curve will shift upward. This will lead to shift in
the equilibrium price and quantity to P' and Q' which is more than earlier P and Q, indicating an
increase in the price and quantity for cars.