ECON103_A1_Spring09 - ECON 103 Spring 2009 Simon Fraser...

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Unformatted text preview: ECON 103, Spring 2009 Simon Fraser University Assignment 1 Due in tutorial in the week of January 26 th Each problem is worth 5 marks, 20 marks in total. Do Problem 18 from Chapter 4 . For full marks provide full explanation, calculate all relevant variables and use diagrams. Problem 1. Mary’s demand for oatmeal is given by P = 1 . 80- . 05 Q where P is price in dollars and Q is measured in pounds she buys per year. (a) What is the maximum amount of money Mary would pay for a 20 lb box of oatmeal? (1 mark) (b) Grocery stores sell oatmeal at 80 cents/lb and “Save on Oats” offers oatmeal at 60 cents/lb but requires a yearly membership. What is the maximum membership fee Mary would pay? (Hint: the max she will pay for membership is equal to the increase in her CS as she shops in Save on Oats compared to shopping elsewhere.) (2 marks) (c) Show your results for part (b) on a carefully labeled diagram. On your diagram show Mary’s CS in grocery stores, CS in “Save on Oats” and the membership fee.Mary’s CS in grocery stores, CS in “Save on Oats” and the membership fee....
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