Ch. 6 End Problems

# Ch. 6 End Problems - chapter 6 > Consumer PROBLEMS and...

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>> Consumer and Producer Surplus chapter 6 1. Determine the amount of consumer surplus generated in each of the following situations. a. Paul goes to the clothing store to buy a new T-shirt, for which he is willing to pay up to \$10. He picks out one he likes with a price tag of exactly \$10. At the cash register, he is told that his T-shirt is on sale for half the posted price. b. Robin goes to the CD store hoping to find a used copy of the Eagles Greatest Hits for up to \$10. The store has one copy selling for \$10. c. After soccer practice, Phil is willing to pay \$2 for a bottle of mineral water. The 7-Eleven sells mineral water for \$2.25 per bottle. 2. Determine the amount of producer surplus generated in each of the following situations. a. Bob lists his old Lionel electric trains on eBay. He sets a minimum acceptable price, known as his reserve price , of \$75. After five days of bidding, the final high bid is exactly \$75. Jenny advertises her car for sale in the used-car section of the student newspaper for \$2,000, but she is willing to sell the car for any price higher than \$1,500. The best offer she gets is \$1,200. c. Sanjay likes his job so much that he would be willing to do it for free. However, his annual salary is \$80,000. PROBLEMS

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3. Hollywood writers have a new agreement with movie producers that they will receive 10 percent of the revenue from every video rental of a movie they worked on. They have no such agreement for movies shown on pay-per-view television. a. When the new writers’ agreement comes into effect, what will happen in the market for video rentals—that is, will supply or demand shift, and how? As a result, how will consumer surplus in the market for video rentals change? Illustrate with a diagram. Do you think the writers’ agreement will be popular with consumers who rent videos? b. Consumers consider video rentals and pay-per-view movies substitutable to some extent. When the new writers’ agreement comes into effect, what will happen in the market for pay-per-view movies—that is, will supply or demand shift, and how? As a result, how will producer surplus in the market for pay-per-view movies change?
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## This note was uploaded on 04/13/2010 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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Ch. 6 End Problems - chapter 6 > Consumer PROBLEMS and...

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