1. In the Amazon.com example of free shipping, the initial experience was different in France because in that country_________,

2. The difference between the Pepsi and Coke taste challenge campaigns is that Pepsi used _________while Coke used _________.

3. Free Goods and the Marginal Principle. Consider the Amazon.com experiences with cheap shipping for orders exceeding $25. Suppose the typical consumer buys $15 books, and the regular shipping charge is $4, regardless of how many books are purchased.

a. In the United States the free-shipping offer changes the marginal cost of a second book from $ _________to $_________. In France, the initial cheap-shipping offer changes the marginal cost of a second book from $_________ to $ _________.

b. Consider a U.S. consumer who buys a single book when there is a $4 shipping charge, and responds to the offer of free shipping by purchasing two books rather than only one. The consumer s marginal benefit for the first book is greater than _________, and the marginal benefit for the second book is between _________and_________.

4. Demand Curves for Cola Challenge. Consider the results of the cola challenge.

a. Draw a pair of demand curves, one for Pepsi and one for Coke, consistent with the results of the non blind tastings.

b. At a given price, for example $1, which product has a larger quantity demanded?

c. For a given quantity, for example 50 units per minute, which product has a higher willingness to pay?

5. Higher Prices versus Lower Income. Recall the example of Maxine, who in January has an income of $30 and pays $3 per movie and $1 per book.

a. In February, the prices of movies and books double, but her income stays at $30. Draw her February budget line and shade her budget set.

b. In March, her income is cut in half to $15, but the price of books returns to $1 and the price of movies returns to $3. Draw her March budget line and shade her budget set.

c. Going from February to March, does her utility level increase, decrease, or stay the same? Explain.

6. Price and Income Changes. Recall the example of Maxine, who has an income of $30 and pays $3 per movie and $1 per book. Use a graph to show the effects of the following changes on Maxine s budget line and budget set.

a. The prices of both movies and books double, but her income doesn’t change.

b. The price of movies increases, but there are no changes in the price of books or her income.

c. The price of movies increases to $5 and her income increases by $8. In this case, will her consumption of books increase, decrease, or stay the same?