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Homework 3 Solutions

# Homework 3 Solutions - demanded Therefore demand was...

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Homework 3 Solutions Chapter 5 (#3 and #7) 3. (a) ; %.%. change in P =−500% change in Q =+286% Elast. =−.57 (b) %.; %. change in P =+237% change in Q =−154% Elast. =−.65 (c) %.; %. change in P =−972% change in Q =+667% Elast. =−.69 (d) %.; %. change in P =+286% change in Q =−286% Elast. = –1.0 7. Total revenue is P × Q. When price rises (cab fare goes up), quantity demanded goes down, by an amount that depends upon the elasticity of demand. Cab drivers who were expecting a 10% increase in revenues were expecting no loss of riders. These cab drivers expected demand to be perfectly inelastic. In fact, revenues did increase, but by less than 10%. Since revenues increased, the percentage increase in price was more than the percentage decrease in quantity

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Unformatted text preview: demanded. Therefore, demand was inelasic, just not perfectly so. Chapter 6 (# 2 and #9) 2) # of Cookies Marginal Utility 1 100 2 100 3 75 4 50 5 25 6 10 7 The maximum he would buy is six because the seventh yields no marginal utility. 9. (b) As shown on the graph, the household ends up at Point A, buying 50 X and 25 Y . (d) X is a normal because consumption increases from 50 to 160. Y is inferior because consumption decreases from 25 to 20. Appendix Chapter 6 (#2) 2. I/P x1 = 100 and I = 100, thus P x1 = \$1.00 (Point A on demand curve) I/P x2 = 200 and I = 100, thus P x2 = \$0.50 (Point B on demand curve) I/P x3 = 300 and I = 100, thus P x3 = \$0.33 (Point C on demand curve)...
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