{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Microeconomics Exam 2 Chapter 5 6 7 handouts 2017 10 20.pdf

Microeconomics Exam 2 Chapter 5 6 7 handouts 2017 10 20.pdf...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Microeconomics Exam #2 Mr. Mayer Fall 2015 Please put all answers on the answer sheet. Good luck! @ Please refer to the graphs to the right to answer questions 1 and 2: 1) Which graph shows the total utility? a) A b) B 2) Which graphs shows marginal utility? a) A b) B 3) What has occurred between point B and point F on graph A? )6 Total utility has increased. b) Total utility has decreased, leading to disutility. $1 Total utility stays the same. 4) Which of the following is true when a good has inelastic demand? )K it is a luxury. b) It must be a large % of the consumer’s budget. C) It must be in the short run. 3): There are probably many substitutes. Questions 5 and 6 are based on the “indifference map” — graph of indifference curves — below: ~\ 5) Which line represents the highest overall level of utility? a) 1 b) 2 c) 3 d) 4 ‘ 6) Which line represents the consumer equilibrium? a) 1 b) 2 c) 3 d) 4 6) lines 1 and 2 True or false: Answer “T” for true, “F” for false — no other letter or pseudoletter will be accepted as an answer. 7) When one consumes more of a good, their total utility will always go up (marginal utility will always be a positive number). 8) As additional units of a good are produced, the average fixed costs fall. 9) When the tax on a good with elastic demand is increased, only buyers of that good (smokers) and not stores that sell it will pay the tax. 10) When income increases and prices stay the same, consumers will reach a lower level of utility. Microec—Qdig—wi—‘L—Jononfies er Fall 2015 ANSWER SHEET 5);: 6)i“ 4Lf4 Fill m' the blank t e quantity consumed of a good increases, the marginal 11) The law which states that a? t utility will decrease is called: JAM . ” ~ , \ Lo “'4, , 13) List a good that would have an elasticity less than 1: 14) Curves whig‘ifiwh hav eLJthe same level _of utility along them are L2, 4 .y\ 15) A Good with an income elasticity of -2 would be: _. _ 16) When producing more causes a firms Average totals costs (cost per unit) to rise, it is / returns to scale. \ called 17) The lowest point of the Average total cost curve, where the Marginal cost intersects it, is called _~ a 1 t ” [at]. / ' 5' J I Short answer: Show all work for partial credit. 1) Calculate the fixed cost (remember the definition of fixed cost), variable cost (VC), average total cost (ATC), average fixed cost (AFC), Average variable cost (AV C), and marginal cost (MC) based on the information in the table below: output 0 \>100 200) ,oo 300> ’00 400 total cost fixed cost 10,000 by, i-IU, 000 30,0009”; IDI 000 20, 000 50 000/ >40“ , 90,000 wow 0, 000 100,000 (0,000 Variable cost Z mi“) L/ 0,00 0 ((2,000 a, "70,u’00 ATC $00 c3150 L) O 060 or) AVC AFC DO [03 SO I 'lr A .v ’.t L"(n’ .2 KOO r. n k. l Total I' “.m. MC ‘ K) .1 \J' ’ (it. M» Q . J.) (’9‘); \ If the price ofthe output in the problem almvejb’4'00 (and the firm is in perteet competition). at "what quantity will they maximize their profits? )_O_Q 2) Using the three determinants of elasticity, state when the demand for a good will be inelastic. , kg“) -' MMWI um} 5!) on: New 3) When the price of Red Bull rises from $5 per canto $5.50, the quantity purchased falls from 1000 to 800. What is the price elasticity? a4, “Cw <aoo 4000, -_,.;zoo [00° : m2 ,uoo= «:70 ’ 550-5 = 5 _. Q0 : IO :10 5 I 02 3b) Calculate the price elasticity for the above problem (#3b) using the Midpoint formula. 300' “’00 .- «>262 .2 1000 +800 = Moo-",7; €00 .Do 700 b.+5.50-‘/o.5 /.2: 5.25 "2“"; =L::lo?.33 9,5; 5.50 _ 5 t 6" 5'. as OL D ,4 ' u) 4) When incooLmDe faflllbsufrom $20,000 to $19,000 per year, the quantity of spam bought rises from 100 to 125. Calculate the income elasticity and state if spam is a normal or inferior good. 925': __ ,. @5400 : ‘075x/00= :15 /00 [9,000 ’QOIOOD .70.ooo ,. —,05x/oo ’— ~5 ’b a"b : r Ufififl/“J. tr“ h»; /; (391') 3h“ New 0 o 5) When the price of turkeys falls from $1L a pound to $.90 a pound, the quantity of porkn-beans purchased goes from IMO cans to cans. Calculate the cross-price elasticity, and state whether turkey and pork-n- cans are substitutes or compliments. 80400: _920 Ioo .‘f—Ioo _/D 1.00 /o:.—.3'O‘ +7. :02: gubs‘lum 6) Label the cost curves on the graph below: L! 7) identify increasing returns to Scale, minimum efficient scale, Minl'vmum efficient scale below Kb}, ,t.) . r 3'- V .9 \ \ ,3. Group work: Q\(\ \‘Q‘ 1) Price of lima beans falls from $1 to $.30. The Quantity of lima beans purchased rises from 100 to 310. Calculate the price elasticity of lima beans using the simple method and the midpoint method. 2) The average income of Norwich residents rises from $20,000 a year to $25,000 a year. They quantity of beer bought in Norwich rises from 10,000 cases a year to 12,500 cases a year. Calculate the income elasticity. Is beer a normal good or is it an inferior good? 3) The price of sugar substitute rises at ShopRite from $2 a box to $2.40 a box. The quantity of coffee purchased falls from 1000 cans a week to 900 cans a week. Calculate the cross price elasticity. Are these goods compliments or substitutes? DETERMINANTS OF ELASTICITY: MICROECONOMICS Elasticity The formula for price elasticity is __g__Lty/° o Chane in uanti % change in price (the formula for % change is new-01d x 100%) old ***When the price elasticity is between 0 and 1, the demand for the good is inelastic, meaning it is a necessity. *** When the price elasticity is greater than 1, the demand for the good is elastic, meaning it is a luxury. For example, ShopRite lowers its price on ham from $2.00 a pound to $1.50 a pound. Last week (old) people bought 1,000 pounds of ham; this week, (new) people bought 1,100 pounds of ham. 1_0% change in Quantity = .4 inelastic, necessity 25% change in P Midpoint formula: % change in Q/% change in P Step 1: Calculate midpoint P and midpoint Q new + old 2 Step 2: calculate the % changes based on the MIDPOINT P and Q, calculated in step 1 Step 3: Use the same price elasticity formula you did above For example, let’s calculate the price elasticity using the MIDPOlNT formula for the ShopRite problem above. Step 1: Midpoint P = $1.75 ($2.00+$1.50)/2 Midpoint Q —— 1050 ——(1000+1100)/2 step 2.- % change in price =' (1'.5-2)/1.75 —— .286 = 28.6% % change in Q = (1100-1000)/1050——.095 = 95% step 3: 9.5% = .33 = inelastic 28.6% INCOME Elasticity: % change in Q/% change in Income When positive: the good is a normal good When negative, the good is an inferior good For example: When the average Income in a town rose from $10,000 to $15,000, people in that town bought 2000 boxes of Roman noodles, compared with 8,000 the year before. —g__Q_y—75/°o chane in uantit = —1.5 = inferior good + 50% change in Income CROSS Price Elasticity: % change in Q good a/% change in P good B When positive, the goods are substitutes When negative, the goods are compliments (consumed together, so if the price of one good rises, people buy less of that good and so they buy less of the other good) For example: The price of chicken falls to $.50 a pound from $1.00 a pound. The quantity of beef people buy falls from 1000 pounds to 750 pounds. ___g___Q_—25/°o Chane in Q beef = +5 = chicken and beef are substitutes -50% change P chicken ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern