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ARE100A INTERMEDIATE MICROECONOMICS:
THEORY OF PRODUCTION AND CONSUMPTION
FALL QUARTER 2009
Problem Set 5
Due Thursday, October 22 at the start of class.
1.
The market price of coffee at the Coffee House is $1.40 per cup.
The first cup in the
morning is worth $5 to me, the second cup is worth $1.50, the third cup is worth $1.00 and I
would pay nothing for any more.
a. How many cups do I buy?
b. What is my total consumer surplus for coffee purchases?
Explain your answers with a diagram.
2. The first cup of coffee in the morning is worth $5 to me, the second cup is worth $1.50, the
third cup is worth $1.00 and I would pay nothing for more.
The price of coffee drops from
$1.40 to $1.20 per cup.
a. How many cups do I buy?
b. What is the
change
in my consumer surplus caused by the decline in price?
Explain your answer with a diagram or equations.
3.
The demand curve is Z = P
0.5
Y, where P is price per pound and Y is money income in
thousands of dollars.
Income is $100 thousand and P = $100/pound.
a. What is the Z* observed in the market?
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 Fall '08
 CONSTANTINE

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