PART I (20 POINTS)
1. Suppose D0 and S0 are the initial demand and supply curves for natural gas. P0* and Q0* are respectively the initial equilibrium price and initial equilibrium quantity in the market for natural gas. A new technology reduces the cost of extracting natural gas. Using comparative statics, analyze how the equilibrium price and equilibrium quantity in the market for natural gas will change as a result of this new technology? Be sure to illustrate your answer with graph. (5 points)
2. Suppose D0 and S0 are the initial demand and supply curves for tablets. P0* and Q0* are respectively the initial equilibrium price and initial equilibrium quantity in the market for tablets. Rapid economic growth over the last three years has substantially increased the disposable income of most households. Using comparative statics, analyze how the equilibrium price and equilibrium quantity in the market for tablets will change as a result of the increase in disposable income. Be sure to illustrate your answer with graph. (5 points)
3. Suppose that a market with an inelastic supply curve experiences a shift to the right in the demand curve. Using comparative statics, analyze how the equilibrium price and equilibrium quantity in this market will change as a result of the shift to the right in the demand curve. What is the magnitude of the change in the equilibrium price and equilibrium quantity? Be sure to illustrate your answer with graph. (5 points)
4. Suppose that a market with an inelastic demand curve experiences an upward shift (to the left) in the supply curve. Using comparative statics, analyze how the equilibrium price and equilibrium quantity in this market will change as a result of this shift in the supply curve. What is the magnitude of the change in the equilibrium price and equilibrium quantity? Be sure to illustrate your answer with graph. (5 points)
PART II (30 POINTS)
Suppose an industry that has 10 firms. Below are the market shares for 2008 and 2013 of the 10 firms.
Market Share
Firms 2008 2013
A
B
C
D
E
F
G
H
I
G 26%
21%
16%
10%
9%
7%
4%
3%
2%
2% 22%
23%
19%
9%
8%
7%
6%
4%
1%
1%
1. Calculate the concentration ratio CR4 and the concentration ratio CR8 for 2008 and 2013
(5 points)
2. Calculate the Herfindahl-Hirschmann Index (HHI) for 2008 and 2013 (5 points)
3. Using the CR4, CR8, and HHI, analyze the evolution of the seller concentration in the industry. Has the industry become more or less concentrated? (10 points)
4. Using the CR4, CR8, and HHI, analyze the evolution of the potential market power of firms in the industry. (10 points)