5. Market Failures (4 points) Complete either part a OR part b. a. In the case of the negative externality, which of the three costs is greatest? Explain why. b. If a consumer is willing to spend $500 for an item that is marked as being $350, solve for the consumer's surplus earned by this consumer. Explain why the consumer's surplus is a market failure. 6. Product Choices (16 points) You are trying to figure out what combination of Products A and B to buy, given that you currently have an income of $800 to spend. The price of product A is $200, while the price of product B is $100. Below is a list of the total and marginal utility you derive from consuming both products. Complete parts a, b, and c. PRODUCT A PRODUCT B Quantity Total Utility Marginal Utility Quantity Total Utility Marginal Utility 0 0 2000 900 1600 700 AWNE AWN 1400 500 6000 300 a. Fill in the blanks in the table above. b. Given your income of $800, what combination of the two products will you purchase? c. At what rate does the total utility increase (constant, decreasing, or increasing)? Explain why. 7. Article (8 points) Read the article, "A Big Change is Coming to Subway Restaurants Today" below. Complete parts a, b, c, and d together. Based upon the article, Subway has purchased slicers costing $6000. This is being done in an attempt to affect sales since they will now be offering freshly sliced deli meats. These two phenomena occurring simultaneously will cause both the supply and demand curves to shift due to the introduction of the new slicers along with the anticipated change in buyer willingness. a In which direction will the supply curve shift? b. In which direction will the demand curve shift? C. When these two shifts occur at the same time what effect will it have on the equilibrium quantity? Will the equilibrium quantity decrease, increase, or be indeterminate? d. When these two shifts occur at the same time what effect will it have on the equilibrium price? Will the equilibrium price decrease, increase, or be indeterminate? arch O