NEU BS, Microeconomics, Tran Thi Hong Viet, Ph.

Group assignment presentation 3

1. Case 1
In the late summer of 2015, Hurricane Katrina caused a storm surge and levee breaks that
flooded much of New Orleans and destroyed a large fraction of the city’s housing.
Hundreds of thousands of residents were displaced, and about 250,000 relocated to
nearby Baton Rouge. The increase in population was so large that Baton Rouge became
the largest city in the state, and many people started calling the city “New baton Rouge”.

Before Katrina, the average price of a single-family home was $130,000. The increase in
the city’s population shifted the demand curve to the right, causing excess demand for
housing at the original price. Just before the hurricane, there were 3,600 homes listed for
sale in the city, but a week after the storm, there were only 500. The excess demand
caused fierce competition among buyers for the limited supply of homes, increasing the
price. Six months later, the average price had risen to $ 156,000

Questions

a. Explain the effects of Hurricane Katrina to demand for housing in Baton Rouge
and to the price and quantity of housing there. Use a graph to explain.

b. Suppose that five years after Hurricane Katrina, half the people who had relocated
to Baton Rouge move back to a rebuilt New Orleans. Use a demand and supply
graph of the Baton Rouge housing market to show the market effects of the return
of people to New Orleans.

2. Case 2
In the last few years thousands of honeybee colonies have vanished, a result of bee
colony collapse disorder (CCD). Roughly one-third of the US food supply- including a
wide variety of fruits, vegetables, and nuts- depends on pollination from bees. The
decline of honeybees threatens $ 15 billion worth of crops in the US. The decrease in
pollination by bees has decreased the supply of strawberries, raspberries, and almost,
leading to higher prices for these ingredients for ice cream. The higher price for berries
and nuts have increased the cost of producing food products, such as ice cream,
increasing their prices as well.

Questions

Draw graphs to show the effects of the decline of the bee population on the market for
ice cream and explain that effects.
NEU BS, Microeconomics, Tran Thi Hong Viet, Ph.D

3. Problem solving

When a restaurant charges 10$ per meal (per person) it found that Mr. and Mrs. Binh,
who are typical customers, dined out once a month, Ceteris Paribus. When the
restaurant, as a promotional device, introduced a voucher system giving patrons two
meals for the price of one, the Binh’s dined out three times a month.

a. Calculate the elasticity of demand for this restaurant

b.. Explain what impact the promotional vouchers had on the Binh’s monthly
expenditure on meals at this restaurant. Is the change in total expenditure consistent
with the value of demand you calculate?

4. College Enrollment and Apartment Prices

Consider a college town where the initial price of rental apartments is $400 and the initial
quantity is 1,000 apartments. The price elasticity of demand for apartments is 1.0 and the
price elasticity of sully of apartments is 0.5.
a. Use demand and supply curves to show the initial equilibrium, and label the
equilibrium point a.
b. Suppose that an increase in college enrollment is expected to increase the demand
for apartments in college town by 15 percent. Use your graph to show the effects
of the increase in demand on the apartments market. Label the new equilibrium
point b.
c. Predict the effect of the increase in demand on the equilibrium price of apartments.

5. Import Restrictions and the Price of Steel

Suppose import restrictions on steel decrease the supply of steel by 24 percent.
The initial price of steel is $100 per unit, the elasticity of demand is 0.7, and the elasticity
of supply is 2.3. Predict what is the effect of the import restrictions on the equilibrium
price of steel. Illustrate your answer with a graph that shows the initial point (a) and the
new equilibrium (b).