Q20.... questions

Exercises Question 0 Write down and explain the formulas and intuitions of all elasticities we have studied. Question 1 (Price Elasticity of Demand: Calculating Elasticities) What can be concluded if the price elasticity of demand is -1.5? What can we say about this demand of this good at this moment? 2. Suppose price of a good increases from $3 to $5 causing the quantity demanded to decrease from 10 units to 6 units. What is the price elasticity of demand using midpoint percentage? 3. Suppose the demand curve for a good is given by P = 10 - 0.50. Find the price elasticity of demand: a. when the price is $3. b. when the quantity is 7 units. c. when the price is $5. (You should know something about this number.) 4. If the price elasticity of demand is -1 when the current price is $2 and current quantity is 10 units. What is the slope of the demand curve? Question 2 Suppose the demand for Tuberculosis drug is given by Q = 100. Draw this demand curve. 1. If the price of this drug increases from $13.5 to $750, what is the effect to the quantity demanded? What is the price elasticity of demand? 2. Suppose supply decreases, what would happen to the equilibrium price and quantity? Question 3 (Income Elasticity of Demand) 1. Suppose income increases by 10% causes the quantity demanded to decrease by 10%, what is the income elasticity of demand? What can be said about this good at current situation? 2. Suppose income increases from $14,000 to $16,000 causes the quantity demanded of a good to change from 590 units to 610 units. What is the income elasticity of demand calculated using midpoint percentage? What can we say about the characteristic of this good? Question 4 (Cross-price Elasticity of Demand) 1. If the price of ski boots increases, then the [ quantity demanded / demand ] of ski boots would [ increases / decreases ]. This causes the [ quantity demanded / demand ] of skis to [ increases / decreases ]. That is, there is a [ shift / movement along ] the demand curve for skis to the [ left / right ]. Thus, the cross price elasticity of demand for skis with respect to ski boots price is [ negative / positive ]. In other words, skis and ski boots are [ complements / substitutes ]. Business Learning Center - Econ 101 (Hansen) - Session 4 (September 23, 2015) Tutor: Kanit Kuevibulvanich 2. A 10 percent decrease in the price of corn causes the demand for the zucchini to decrease by 10 percent. What is the cross price elasticity of demand for zucchini with respect to the price of corn? What can we say about corn and zucchini? Question 5 (Revenue Maximization) 1. In a linear demand curve, when the demand is elastic, a decrease in price causes a [ large / small ] increase in quantity demanded. Therefore, total revenue, which is price times quantity, [ decreases / increase ]. 2. Suppose the demand curve is given by P = 20 - 20. a. If the current quantity sold is 2 units, an increase in price will [ increase / decrease ] the total revenue. b. If the current price is $4, an decrease in price will [ increase / decrease ] the total revenue. c. At what price and quantity does the producer maximize the total revenue?Exercises Question 1 (Budget Line Basics) 1. Write down the equation for the budget line of two goods, when one has an income of $200, the price of good X is $5 and the price of good Y is $10. What is the slope of this budget line? 2. What happens to the budget line if the price of good X decreases from $5 to $2.5? 3. What happens to the budget line if the price of good Y increases from $10 to $20? 4. What happens to the budget line if the income decreases to $100? 5. What happens to the budget line if one has an income of $100, the price of good X is $2.5 and the price of good Y is $5? Question 2 (Consumer Theory - Tabulated Question Format) Suppose good X and good Y are indivisible, that is, must be consumed in exact units. Quantity Good X Good Y (Units) Total Marginal Total Marginal Utility Utility Utility Utility 1 50 40 2 80 60 3 100 70 4 110 75 1. Fill in the marginal utilities in the table above. Suppose the price of good X is $5, the price of good Y is $10 2. If the income is $40, what is the optimal consumption bundle of good X and Y? 3. If the income is $25, what is the optimal consumption bundle of good X and Y? 4. If the income is $30, what is the optimal consumption bundle of good X and Y? Question 3 (Consumer Theory - Conceptual Question) If price of good X is $10, and price of good Y is $20 1. What is the marginal rate of substitution of the optimal consumption bundle? 2. If currently the marginal rate of substitution (MUx/MUY) is 4, then one is consuming [ too much / too few ] of good X and [ too much / too few ] of good Y. 3. If currently the marginal rate of substitution (MUx/MUY) is 0.5, then one is consuming [ too much / too few ] of good X and [ too much / too few ] of good Y. 1Question 4 (Consumer Theory - Equation Question Format) 1. There are two goods to be consumed, X and Y, at price Px and Py, respectively. Write down the condition which yields the maximum happiness. Explain the happiness formula. 2. The marginal rate of substitution is given by MRS = MUx/MUY = 3Y/X. If prices of good X and good Y are $10 and $5, respectively, and you have the income of $120, what is your optimal consumption bundle? Also draw the solution in the budget line and indifference curve. 3. If prices of good X and good Y are $20 and $10, respectively, and you have the income of $240, what is your optimal consumption bundle? (Hint: If it takes you more than 5 seconds for this part, you must have been zoning out in class!)Exercises Question 1 (Explaining the Example in Class: Consumer Theory - Tabulated Question Format) Suppose good X and good Y are indivisible, that is, must be consumed in exact units Quantity Philharmonic Concert (P = 10) Theater (P = 12) (Units) Total Marginal MU/P Total Marginal MU/P Utility Utility Utility Utility 0 0 0 1 10 10 1 20 20 1.6 17 7 0.7 35 15 1.25 22 5 0.5 45 10 0.83 4 26 4 0.4 50 5 0.42 28 2 0.2 50 0 0 29 1 0.1 27 -2 -0.2 If the income is $100, what is the optimal consumption bundle of each good? Question 2 (Consumption Choice with Multiple Goods) Find Jim's optimal consumption bundle for the following 4 goods when he has $32 to spend Goods Price Marginal Utility Marginal Utility Marginal Utility Marginal Utility from 1st Unit from 2nd Unit from 3rd Unit from 4th Unit Burrito $8 160 40 20 8 Tacos $2 10 10 5 Salad $4 40 20 10 10 Soda $1 4 3 3 3 Question 3 (Deriving a Demand Curve) Your income is $100. When the price of good X and good Y are $10 and $5, respectively, you purchase 5 units of good X and 10 units of good Y. When the price of good X decreases to $5, you purchase 15 units of good X and 5 units of good Y. 1. Graphically exhibit the two scenarios explained above in the context of consumer theory. 2. From the diagram drawn in part 1, plot the demand curve in the graph beneath. 3. Suppose the demand curve is linear, write down the equation for the demand curve. 4. Can you conclude anything whether good X and good Y are complements or substitutes? Business Learning Center - Econ 101 (Hansen) - Session 6 (October 12, 2015) Tutor: Kanit Kuevibulvanich Question 4 (Income and Consumption - The Engel Curve) This question outlines what you will see when we derive the Engel curve for goods. Assuming that the price of goods X and Y remain constant at $10 and $5, respectively. When income is $100, you consume 6 units of good X and 8 units of good Y. When income is $150, you consume 10 units of good X and 10 units of good Y. When income is $200, you consume 9 units of good X and 22 units of good Y. 1. Graphically exhibit the three scenarios given above in the context of consumer theory. 2. As income increases from $100 to $150, what can we say about the characteristic of good X? 3. As income increases from $150 to $200, what can we say about the characteristic of good Y? 4. From the diagram drawn in part 1, plot the curve exhibiting the relationship between income and quantity of good X consumed, putting the quantity of good X on horizontal axis. This is known as the Engel curve