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EOC 7 Solutions - modern principles of economics 7 modern...

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S-1MODERNPRINCIPLESOFECONOMICSMODERNPRINCIPLES:MICROECONOMICS77The Price System: Signals,Speculation, and PredictionS-1Facts and Tools1. a.Suppose you’d like to do five different things, each of which requires exactlyone orange. Complete the following table, ranking your highest valued orange-related activity (1) to your lowest valued activity (5).ActivityRank of PreferenceGive a friend the orange.Throw the orange at a person you don’t like.Eat the orange.Squeeze the orange to drink the juice.Use the orange as decorative fruit.b.Suppose the price per orange is high enough that you buy only four.Whatactivity do you not do?c.How low would the price of oranges have to fall for you to purchase five or-anges?What does the price at which you would just purchase the fifth orangetell us about the value you receive from the fifth-ranked activity?1. a.Any order is fine, though watch out for the student that prioritizes throwing theorange at someone they don’t like.b.Whatever activity the student ranked at number 5.c.The price at which the student would just purchase the fifth orange is the value(or just slightly below the value) of the fifth-ranked activity.2.The supply and demand for copper change constantly. New sources are discovered,mines collapse, workers go on strike, products that use it wane in and out of popu-larity, weather affects shipping conditions, and so on.a.Suppose you learned that growing political instability in Chile (the largest pro-ducer of copper) will greatly reduce the productivity of its mines in two years.Ignoring all other factors, which curve (demand or supply) will shift which wayin the market for copper two years from now?b.Will the price rise or fall as a result of this curve shift?c.Given your answer in part b, would a reasonable person buy copper to store forlater?Why or why not? Ignore storage costs.SolutionCowen3e_CH07_Solutions.indd103/07/1510:55 AM
S-2CHAPTER 7 The Price System: Signals, Speculation, and Predictiond.As a result of many people imitating your choice in part c, what happens to thecurrent price of copper?e.Does the action in parts c and d encourage people to use more copper today orless copper today?2. a.Supply would decrease, that is, a shift to the left (up).
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