Problem Set 1
ECO 695
Supply and Demand
1. Supply-demand theoretical questions:
• What is a demand schedule? What is the quantity demanded?
• What is a shift in the demand (curve)?
• Again, shift in demand: What happens when the price of a substitute
good increases?
• How does the market demand curve differ from an individual demand curve?
2. Explain how the following factors will shift the demand curve for Boeing airplanes.
a. The price of Airbus airplanes increases.
b. There is a surge in the demand of airplane tickets as a consequence of the recovery.
c. Oil prices increase.
3. Explain how the following factors will shift the supply curve for microchips:
a. A new AI software substantially improves the productivity of microchip
production.
b. Bottlenecks in the supply of silicon (a key input in the production process of microchips).
c. Increase in the wage of engineers required in the production process.
4. Explain with a supply and demand model the expected effect on US long- term interest rates of Quantitative Tightening.

5. Describe the evolution of the share of the following components over GDP
for the period 1929–2021
• Personal consumption expenditures (C)
• Gross private domestic investment (I)
• Net exports of goods and services (X–M)
• Government consumption expenditures and gross investment (G)
6. Discus the evolution of the different components of consumption (non
durable goods, durable goods, and services) during the recent covid shock
and the expected future evolution.
7. What are the key differences between the Consumer Price Index (CPI) and the GDP deflator? And the differences between the CPI and the CPE?
8. Define Core CPI Inflation and discuss its use.
9. According to Forbes magazine, Elon Musk net worth in March 2021 was
151 Billion.
https://www.forbes.com/sites/sergeiklebnikov/2021/04/06/rocket–
elon–how–teslas–eccentric–boss–became–the–number–two–richest–on–forbes–
2021–billionaires–list/?sh=1d534c4b56b7
But, does this make Musk the richest American who ever lived?
John D. Rockefeller, the founder of Standard Oil, is usually credited with
this distinction. At the time of his death in 1937, the founder of the Standard
Oil empire had an estimated net worth of $1.4 billion.
Please go to the BLS CPI site at:
https://data.bls.gov/cgi–bin/surveymost?cu
Under “Consumer Price Index–All Urban Consumers,” select “US All
Items” and click the “Retrieve data” button at the bottom of the page.
Adjust the years to retrieve data from 1937 through 2020. Use the data
under the “Jan” column to calculate Musk’s 2020 net worth measured in
1937 dollars. You should find that Musk’s wealth does have more buying
power than Rockefeller’s wealth.

10. Discuss the evolution of the Labor Force Participation Rate after 2,000. Do you
expect the labor force participation will recover to its pre–covid value in the
short run?
11. Explain whether the unemployment rate varies with education.
12. Explain the evolution of the vacancy over unemployment ratio.
13. Discuss some policies that may reduce labor shortages.
14. Describe the evolution of wages after covid. Do you expect wages to increase
in the US in the next year?