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Unformatted text preview: BUAD 351 - Economic Analysis for Business Decisions Homework 2 due: Thu 02/12/2009 PART (i): multiple choice question 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 answer b b b a b d b c a b c b c b c PART (ii) short questions 1. Explain brie&y what is meant by the compensating variation Compensating variation measures the amount of monetary compensation that a consumer needs to receive (or would be willing to pay) following a change in market conditions, such as a change in prices to leave him or her as well o as she was with her original bundle (before the change in market conditions). 2. Dene consumer surplus. Knowing the equilibrium market price and the demand curve, how would you measure consumer surplus? Consumer surplus measures the total benet a consumer derives from consuming a particular prod- uct minus the price paid. Consumer surplus is measured by the area below the (inverse) demand curve and above the price paid. That is, the dierence between marginal benet and price for each unit of consumption....
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This note was uploaded on 04/14/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.
- Spring '07