State Georgia University Principles Macroeconomics, ECON 2105 Quiz # 4 Key Name: ID # Five multiple choice questions: select the best answer (two points each). 1. Ceteris paribus, if the market price of sirloin steak increases from $3.50 to $5.50 per pound, a. the demand for sirloin steak will decreases. b. supply of sirloin steak increases. c. quantity demanded of sirloin steak increases. d. sirloin steak will go out of the market. quantity supplied of sirloin steak increases. Sirloin's price does affect neither the demand for nor supply of sirloin, this roles out (a.) and (b.). When sirloin price goes up, by the law of demand sirloin's quantity demanded goes down, this roles out (c.). Carefully see, if I change the word from increases to decreases in (c.) then it would be right answer. Price goes up, a product goes out of market is CRAP. By the law of supply, price of sirloin goes up, quantity supplied of sirloin goes up, (e.) is the right answer. 2. Suppose Kim is willing to pay $5 for her first ice cream sundae, $4 for a second ice cream sundae, and $2 for a third ice cream sundae. If Kim is able to buy all three ice cream sundaes for $2 apiece, she has realized a consumer surplus of a. $1. b. $3. . $5. d. $4. e. $2 .
Kim's maximum willingness pay to = $(5 + 4 + 2) = $11. Kim's actual payment = $2 3 = $6 CS = $(11 - 6) = $5.
3. The inverse demand for personal computer (PC) is given by P = 900 - 0.3Q, where Q is the quantity and P is the price. Find the consumers' surplus (CS), when PC price equals $600. a. $90,000. b. $160,000. c. $88,000. $150,000. e. none of the above. In the given inverse demand equation, a = 900, md = 0.3 and we are given PC price (not quantity) P=$600. CS = (a - P )2 (900 - 600)2 = $150, 000. = 2md 2 0.3
4. The inverse supply of a product it given by P = 40 + 0.2Q. The producers' surplus when the sellers produce and sell 1000(= Q) units. a. $80,000. b. $600,000. c. $60,000. d. $98,000. none of the above. In the given inverse supply equation, b = 40, ms = 0.2 and we are given Q=1000. PS = ms Q2 0.2 10002 = = $100, 000. 2 2
5. The ordinary demand for a product is given by Q = 1400 - 4P. The consumers' surplus when they (consumers) pay a price of $200(=P) a. $30,0000. $45,000. c. $33,500. d. $43,200. e. none of the above. I have given here, ordinary demand. You need inverse demand to use any formula. Therefore, get the inverse demand first. Q =1400 - 4P 4P =1400 - Q P =350 - 0.25Q a = 350, md = 0.25. CS = (350 - 200)2 (a - P )2 = = $45, 000. 2md 2 0.25