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Unformatted text preview: NAME 189 Her income is equal to $100 and the sexton allows her to ring the bell for 10 hours. (a) Due to complaints from the villagers, the sexton has decided to restrict Ms. Moto to 5 hours of bell ringing per day. This is bad news for Ms. Moto. In fact she regards it as just as bad as losing $15 dollars of income. (b) The sexton relents and offers to let her ring the bells as much as she likes so long as she pays $2 per hour for the privilege. How much ringing does she do now? 10 hours. This tax on her activities is as bad as a loss of how much income? $20. (c) The villagers continue to complain. The sexton raises the price of bell ringing to $4 an hour. How much ringing does she do now? hours. This tax, as compared to the situation in which she could ring the bells for free, is as bad as a loss of how much income? $30. 190 CONSUMERS SURPLUS (Ch. 14) Chapter 15 NAME Market Demand Introduction. Some problems in this chapter will ask you to construct the market demand curve from individual demand curves. The market demand at any given price is simply the sum of the individual demands at that price. The key thing to remember in going from individual demands to the market demand is to add quantities . Graphically, you sum the individual demands horizontally to get the market demand. The market demand curve will have a kink in it whenever the market price is high enough that some individual demand becomes zero. Sometimes you will need to find a consumers reservation price for a good. Recall that the reservation price is the price that makes the consumer indifferent between having the good at that price and not hav- ing the good at all. Mathematically, the reservation price p satisfies u (0 ,m ) = u (1 ,m p ), where m is income and the quantity of the other good is measured in dollars. Finally, some of the problems ask you to calculate price and/or in- come elasticities of demand. These problems are especially easy if you know a little calculus. If the demand function is D ( p ), and you want to calculate the price elasticity of demand when the price is p , you only need to calculate dD ( p ) /dp and multiply it by p/q . 15.0 Warm Up Exercise. (Calculating elasticities.) Here are some drills on price elasticities. For each demand function, find an ex- pression for the price elasticity of demand. The answer will typically be a function of the price, p . As an example, consider the linear demand curve, D ( p ) = 30 6 p . Then dD ( p ) /dp = 6 and p/q = p/ (30 6 p ), so the price elasticity of demand is 6 p/ (30 6 p ). (a) D ( p ) = 60 p . p/ (60 p ) . (b) D ( p ) = a bp . bp/ ( a bp ) . (c) D ( p ) = 40 p 2 . 2 ....
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This note was uploaded on 01/31/2010 for the course ECON 100A/ 100B taught by Professor Staff during the Winter '08 term at UCSB.
- Winter '08