ARE100A+PS+5+2009

ARE100A+PS+5+2009 - ARE100A INTERMEDIATE MICROECONOMICS:...

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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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