1. The table below gives Bob's income and the price index for the last 4 years. Respond to parts a.
Using the information in the table.
|
Year
|
CPI
|
Nominal Income
|
Real Income
|
|
1
|
95
|
$48,000
|
|
|
2
|
100
|
$50,000
|
|
|
3
|
106
|
$53,000
|
|
|
4
|
110
|
$56,500
|
|
a. The annual inflation rate for year 2 is , rounded to the tenth.
b. The base year is year because the price index is in that year.
c. Fill in the blanks for real income, rounded to the dollar, in the table above.
d. The purchasing power of nominal income from year 1 to year 2, from year 2 to year 3, and from year 3 to year 4
(fill in the above blanks with one of the following: increased, decreased, or stayed the same)
2. Suppose you are offered a job at $50,000 per year in Atlanta where the cost-of-living index is 220.048. A second job offer in Boston promises to pay you the same real income (purchasing power) as the Atlanta offer. What nominal salary must be offered by the Boston job where the cost-of-living index is 256.376? Round your answer to the dollar.
The Boston job offer must be for it to have the same purchasing power as the Atlanta job offer.
3. Suppose the daily local market for fresh-baked bread is described by the equations:
QS = 120P - 50 and QD = 400 - 30P
a. What is the equilibrium price (PE) and equilibrium quantity (QE) in this market?
PE = $ per loaf QE = loaves
b. What is the situation in this market at P=$2.80 per loaf?
A of loaves of bread exists at P = $2.80.
c. The number of loaves exchanged at P = $2.80 is .
4. Use the graph below to fill in the blanks for a. - c.
a. At equilibrium, sub sandwich buyers enjoy consumer surplus equal to the area .
b. At price = $5 per sub sandwich, there is a deadweight loss equal to the area .
c. Assuming no externalities exist, the efficient quantity of subs is .
d. An increase in the cost of producing each sub will cause the price of a sub to , and consumer surplus to sub sandwich buyers to _ , ceteris paribus.