Econ 200 Homework2_answers - Econ 200 Homework 2 1 You are...

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Econ 200 Homework 2 1. You are trying to reduce the amount you spend in a typical month. When you make a budget of your expenses, you notice that you spend less on groceries than rent, alcohol, books or clothes. Since this is the smallest portion of your budget, you decide it would be the easiest to drop from your spending. Explain why this is or is not ‘economic’ reasoning using the concepts we have discussed in class so far. This is not good ‘economic’ reasoning. Just because your total expenditures on groceries is a smaller portion of your budget than rent, alcohol, books or clothes, it does not mean that the total value you get from groceries is also smaller. It is likely that the total value you get from groceries is larger than the other goods, meaning you would be giving up a lot of value if you stopped buying groceries. 2. The price of a single UW football ticket can be over $70. The price of a typical concert downtown is $15 $25. Does this mean that Seattleites are bigger sports fans than music fans? Use graphs to illustrate your answer. No, this does not mean that Seattleites prefer sports to music. The difference in prices for the football and concert tickets only mean that Seattleites' marginal value of football tickets is higher than concert tickets. It could very well be true that the total value of concerts is higher than for football. As the demand curves for the two activities are drawn below, for example, the total value Seattleites get out of the concerts they attend is much higher than all the football games attended.
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3. In 1950, 6 bottles of Coke cost $0.37. Today one 20oz bottle can cost $1.50. Coke consumption per
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