Econ Hw (5)

Suppose the price of X is $48, the price of Y is $40, and a consumer has income of $480.

Using the line drawing tool, show the budget constraint for this consumer on the graph. Label your line 'BC'.

The opportunity cost of buying one unit of good X is __ unit(s) of good Y. (Round your response to three decimal places.)

1.2

Which of the following combinations of X and Y will be represented by a point on the consumer's budget constraint?

A.

3 units of X and 8 units of Y.

B.

4 units of X and 7 units of Y.

C.

5 units of X and 6 units of Y.

C.

5 units of X and 6 units of Y.

Which of the following are necessary ingredients to the buyer's problem? (Check all that apply.)

A.

Consumer's tastes and preferences.

B.

Consumer's ability to discern product usefulness.

C.

Amount of money the consumer has to spend.

D.

Prices of goods and services.

E.

Employment status of the consumer.

A.

Consumer's tastes and preferences

C.

Amount of money the consumer has to spend.

D.

Prices of goods and services.

Abbie can buy books or toys for her grandson. Here are three possible bundles that she can afford.

Bundle	Quantity of Books	Quantity of Toys
A	16	0
B	8	5
C	0	10

Draw the budget set for Abbie.

Using the triangle drawing tool,

draw Abbie's budget set. Label the triangle 'Budget set'.

Given the information in the table, the opportunity cost of a toy, in terms of books, is ___. (Round your answer to two decimal places.)

1.6

If the price of a toy is $16, the price of a book is $___. (Enter your answer as a whole number.)

10

Henry has $240 to spend on movies and concerts. Suppose the price of a movie ticket is $12 and the price of a concert ticket is $60.

Using the line drawing tool, show the budget line for Henry on the top graph. Label your line 'BL'.

Suppose the price of concert tickets drops to $40.

Using the line drawing tool, show the change in the budget line that would occur on the bottom graph. Label your line 'BL2'.

Now suppose Henry has $480 to spend rather than $240. How will this change affect Henry's budget line?

A.

It shifts outward in a parallel fashion.

B.

It pivots, moving leftward along the horizontal axis and outward along the vertical axis.

C.

It shifts inward in a parallel fashion.

D.

It does not move.

A.

It shifts outward in a parallel fashion.

Given the information about Henry's income and the prices for concerts and movies, we are unable to determine where on the budget line Henry would choose to consume because __________.

A.

Henry's budget line is an incomplete description of his choices.

B.

Henry's tastes regarding movies and concerts are unknown to us.

C.

like all consumers, Henry's consumption choice is a rash decision.

D.

none of the above.

B.

Henry's tastes regarding movies and concerts are unknown to us.

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $ 70 and his marginal benefit from an additional slice of pizza is $ 50.

If the price of a soft drink is $ 2 and the price of a slice of pizza is $ 4, is Charley maximizing his total benefits?

A.

No, he should increase his consumption of both goods.

B.

No, he should shift consumption toward pizza and away from soft drinks to maximize total benefits.

C.

No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits.

D.

Yes, there is no other consumption choice that will make his total benefits greater.

C.

No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits.

The demand curve shows ___________.

A.

the possible bundles of goods that can be purchased with a consumer's income.

B.

what goods you like compared to other goods and services.

C.

how the quantity demanded responds to changes in the price of the good.

D.

how the quantity demanded responds to changes in consumers' income.

C.

how the quantity demanded responds to changes in the price of the good.

Everything else the same, as the price of the good increases, quantity demanded _______.

Decreases

According to economists, the process of optimal decision making by consumers typically yields total benefits well above the amount paid for the goods.

These market-created benefits are referred to as ___ ___, and using the graph, are represented by area __

consumer surplus; B

Suppose now that the market price falls. According to the graph, the excess of total benefits over the total amount spent by consumers will ___.

increase

The price of rice in a small country is currently $9 per pound. In order to help low-income people afford an adequate diet, the government introduces a subsidy of $3 per pound of rice.

Using the graph, show the area representing the increase in consumer surplus as a result of the subsidy. Assume that the full amount of the subsidy is passed on to consumers.

To do this you must create a single area by combining two shapes obtained as follows:

Using the rectangle drawing tool, draw a portion of the desired area.

Using the triangle drawing tool, draw the second portion of the desired area.

According to the graph, consumer surplus increases by $__ as a result of the subsidy

75

Now using the rectangle drawing tool, show the cost of the subsidy in the graph. (Note: the "hatched" area measures the increase in consumer surplus derived above.)

According to the graph, the cost of the subsidy is $__

90

From this analysis, the cost of the subsidy ____ the increase in consumer surplus by $__

Exceeds; 15

The price elasticity of demand shows the percentage change in the quantity demanded of a good due to __ ____ change in the good's price

a percentage

In the market for sweaters, suppose Green's price elasticity of demand is 0.5, Smith's price elasticity is 1.5, and the price elasticity of all the other consumers is greater than 0.5 but less than 1.5.

Could the market price elasticity be less than 0.5 or greater than 1.5?

A.

Yes, it can be a multiple or fraction of the average of the elasticities of individual consumers.

B.

No, it must lie between 0.5 and 1.5.

B.

No, it must lie between 0.5 and 1.5.

Which of the following shows the arc elasticity method of calculating the price elasticity of demand?

Consider the following statement:

Given that bacon and eggs are complementary goods, if the price of eggs increases the demand for

both goods will fall.

Is this an accurate statement?

A.

It is somewhat inaccurate. The increase in the price of eggs will reduce the quantity demanded (not the demand) for bacon. It will, however, as the statement claims, reduce the demand for eggs.

B.

It is somewhat inaccurate. The increase in the price of eggs will reduce the quantity demanded (not the demand) for eggs. It will, however, as the statement claims, reduce the demand for bacon.

C.

Yes, the increase in the price of eggs will reduce both the demand for eggs and the demand for bacon.

D.

No, the quantity demanded (not the demand) for both goods is reduced as a result of the increase in the price of eggs.

B.

It is somewhat inaccurate. The increase in the price of eggs will reduce the quantity demanded (not the demand) for eggs. It will, however, as the statement claims, reduce the demand for bacon.

Consider the following demand schedule for

bags.

Price	Quantity
$</p><p>13</p></td><td colspan="1" rowspan="1" style="background-color: transparent; padding: 1px; border-width: 1px; vertical-align: middle; text-align: start;"><p>60</p></td></tr><tr><td colspan="1" rowspan="1" style="background-color: transparent; padding: 1px; border-width: 1px; vertical-align: middle; text-align: start;"><p>$ 15	56
$ 17	48

When the price of bags rises from $13 to $15, the price elasticity of demand is approximately ___.

(Calculate using the midpoint formula, round your answer to one decimal place, and enter a "-" if your answer is negative.)

-0.5

When the price of bags increases from $15 to $17, the total expenditure will ____ because the price elasticity of demand is ___ ___. (hint: compute the price elasticity for this price increase.)

Decrease; relatively elastic

Jonathan works at a convenience store and makes note of changes to sales after the price of liquid soap unexpectedly increases by 15 percent. He notices that the sale of shampoo decreases by 3 percent and the sale of lotion increases by 10 percent.

The cross-price elasticity of demand between liquid soap and shampoo is (Round your answer to one decimal place and enter a "-" if your answer is negative.)

-0.2

Based on the cross-price elasticity of demand, we can infer that liquid soap and lotion are ____.

Substitutes

Three years after graduating from college, you get a promotion and a 20 percent raise. Your consumption habits change accordingly.

(For all the calculations below round your answer to two decimal places, and enter a "-" if your answer is negative.)

Suppose your consumption of frozen hot dogs has reduced by 12 percent. Your income elasticity of demand is ____. Thus, we can say that a frozen hot dog is a(n) ___ ___

-0.60; inferior good

Suppose your consumption of pork chops has increased by 16 percent. Your income elasticity of demand is __ . Thus, we can say that a pork chop is a(n) __ __

0.80; normal good

Suppose your consumption of sockeye salmon has increased by 28 percent. Your income elasticity of demand is __. Thus, we can say that a sockeye salmon is a(n) __ __

1.4; luxury good

Suppose Hershey's increases the price of its chocolate syrup by 14 percent. In response, the quantity demanded of Nesquik chocolate syrup rises by 10 percent and the quantity demanded of Breyer's vanilla ice cream falls by 4 percent.

The cross-price elasticity of demand between Hershey's syrup and Nesquik's syrup is ___, implying these two goods are ____.

Positive; substitutes

The cross-price elasticity of demand between Hershey's syrup and Breyer's vanilla ice cream is __, implying these two goods are ___.

Negative; complements

Suppose that incomes rise by 9 percent given the price change cited above. As a result, Hershey's experiences a 5 percent increase in sales volume.

Given this information, Hershey's syrup is a ___ good.

Normal