Problem Set 4 - ECON300 A Fall2015 PROBLEM SET 4...

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ECON300 A, Fall2015 PROBLEM SET 4- Corresponds to Chapter 14 ____ 1. Sir Plus has a demand function for mead that is given by the equation D ( p ) 100 p . If the price of mead is $85, how much is Sir Plus’s net consumer’s surplus? a. 112.50 b. 15 c. 225 d. 56.25 e. 7,650 ____ 2. Sir Plus has a demand function for mead that is given by the equation D ( p ) 100 p . If the price of mead is $95, how much is Sir Plus’s net consumer’s surplus? ____ 3. Ms. Quasimodo has the utility function U ( x , m ) 100 x x 2 /2 m , where x is her consumption of earplugs and m is money left over to spend on other stuff. If she has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $65, then her net consumer’s surplus ____ 4. Ms. Quasimodo has the utility function U ( x , m ) 100 x x 2 /2 m , where x is her consumption of earplugs and m is money left over to spend on other stuff. If she has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $75, then her net consumer’s surplus ____ 5. Bernice has the utility function u ( x , y ) min x , y , where x is the number of pairs of earrings she buys per week and y is the number of dollars per week she has left to spend on other things. (We allow the possibility that she buys fractional numbers of pairs of earrings per week.) If she originally had an income of $18 per week and was paying a price of $8 per pair of earrings, then if the price of earrings rose to $14, the compensating variation of that price change (measured in dollars per week) would be closest to a. $12. b. $25.
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c. $7.20. d. $24. e. $23. ____ 6. If Bernice (whose utility function is min x , y , where x is her consumption of earrings and y is money left for other stuff) had an income of $16 and was paying a price of $8 for earrings when the price of earrings went up to $10, then the equivalent variation of the price change was ____ 7. If Bernice (whose utility function is min x , y , where x is her consumption of earrings and y is money left for other stuff) had an income of $20 and was paying a price of $1 for earrings when the price of earrings went up to $6, then the equivalent variation of the price change was ____
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