Econ II Assignment 2.docx - Gardner-Webb University...

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Gardner-Webb University – Principles of Econ II Fall 2016 Assignment 2 September 24, 2016 Chapter 4 - pg 126 1. What do economists assume when they are constructing a model of demand? Why are these assumptions necessary? The model of demand is an attempt to explain the amount demanded of any good or service. Economists assume that people’s incomes and tastes, their expectations about future prices, and the prices of related goods, are assumed not to vary during the given time period. These assumptions are necessary because there has to be some basis or assumption for economists to predict future behavior. 5. What conditions of utility theory are fulfilled at all points on an individual’s demand curve? The condition of maximizing utility. Whether it’s through budget, substitution, etc… The consumer seeks to maximize utility. 8. You are given the demand schedule shown in Table 4-10 Calculate the price elasticity of demand between each pair of prices The PED is 9.09 Chapter 5 - pgs 154 11. Alpha Lumber Co. has the following short-run total costs: Total explicit cost = $40,000 Total implicit cost = $20,000 How profitable (Economic profit, normal profit or economic loss) is the company in each of the following cases: a. Total Revenue = $65,000 – Economic Profit b. Total Revenue = $60,000 – Normal Profit c. Total Revenue = $55,000 –
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