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aggregating curves

# aggregating curves - Midterm 1 Results Average=29.2 Std...

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1 Midterm 1 Results Average=29.2, Std Dev=4.49 Max=39, Median=30, Min=18 34-40 A 18% 29-33 B 43% 22-28 C 34% 20-21 D 2.5% <20 F 2.5% Please note: since the curve for the class will be based on your cumulative score for the class, these grades should be regarded as approximate. Common Errors on Short Answer Qs 1) (compost) Consuming where MB=MC maximizes total surplus. In a table like this where there isn’t a discrete point at which MB=MC you know to stop once MC>MB because that additional unit decreases surplus. Most of you got that but a lot of you ran into trouble calculating MB. Calculate MB by figuring out how much value each additional pound of compost gives you (additional tomato yield*price of tomatoes). 2b) (bus rides) price elasticity of demand=P/Q*(1/slope) 4b) (newspaper) Most of you drew the graph correctly but relatively few recognized that the effect on P* is indeterminant. Decrease in D lowers P* but decrease in S causes a rise in P*, don’t know which one dominates 5) (gas price volatility) Gasoline demand is relatively inelastic so supply shifts result in big changes in P*, not much in Q*. Resource Allocation Methods You’re on a bus filled to capacity going up to snowboard Mammoth and the bus breaks down 2 miles away from your lodge. A replacement bus comes but it only holds half the number of people as the old bus and it can only make one trip up tonight (the road down is blocked by snow). Who gets to ride up on the replacement bus? Resource Allocation Methods Scarce resources might be allocated by using any or some combination of the following methods : § Market price § Command § Majority rule § Contest § First-come, first-served § Sharing equally § Lottery § Personal characteristics § Force Demand and Marginal Benefit Demand, Willingness to Pay, and Value – Value is what we get, price is what we pay. – The value of one more unit of a good or service is its marginal benefit . – We measure value as the maximum price that a person is willing to pay. – Willingness to pay determines demand. A demand curve is a marginal benefit curve.

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