# ch3a - Chapter 3 Supply and Demand Tuesday June 22 CHAPTER...

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Chapter 3: Supply and Demand Tuesday, June 22

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CHAPTER 1 REVIEW. .. Marginal benefit is the benefit from an additional unit. Marginal cost is the cost of an additional unit. Consumers should continue buying additional units of a good until marginal benefit is no longer greater than marginal cost . This maximizes consumer surplus . Producers should continue selling additional units of a good until marginal benefit (or marginal revenue) is no longer greater than marginal cost . This maximizes producer surplus . When considering the cost of something, one should take into account implicit costs as well as explicit costs .
QUESTION 1 (the margin) How many donuts should I buy? A) 2 B) 3 C) 4 D) 5 E) 6 or more donuts cost \$1 each donuts total benefit (willingness to pay) 1 \$2.75 2 \$5.00 3 \$6.75 4 \$8.00 5 \$8.75 6 \$9.00

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answer to question 1 How many donuts should I buy? A) 2 B) 3 C) 4 D) 5 E) 6 or more donuts costs \$1 each donuts total benefit marginal benefit marginal cost total surplus 1 \$2.75 \$2.75 \$1 \$1.75 2 \$5.00 \$2.25 \$1 \$3.00 3 \$6.75 \$1.75 \$1 \$3.75 4 \$8.00 \$1.25 \$1 \$4.00 5 \$8.75 75¢ \$1 \$3.75 6 \$9.00 25¢ \$1 \$3.00
QUESTION 2 (the margin) How do I know that it’s time to stop buying more donuts? A) When opportunity costs are zero. B) When consumer surplus is negative C) When the average benefit is less than the average cost D) When the total benefit is less than the total cost E) When the marginal benefit is less than the marginal cost

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answer to question 2 How do I know that it’s time to stop buying more donuts? A) When opportunity costs are zero. B) When consumer surplus is negative C) When the average benefit is less than the average cost D) When the total benefit is less than the total cost E) When the marginal benefit is less than the marginal cost
QUESTION 3 (the margin) How many weekends should I stay? A) 1 B) 2 C) 3 D) 4 E) 5 weekends 1 2 3 4 5 6 total benefit 6,400 9,600 11,200 12,000 12,400 12,600 For every weekend that I spend at my summer house, I need to spend \$500 in air fares. Every weekend that I don’t spend there, I can make \$1,000 by renting it to someone else.

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answer to question 3 How many weekends should I stay? A) 1 B) 2 C) 3 D) 4 E) 5 weekends 1 2 3 4 5 6 total benefit 6,400 9,600 11,200 12,000 12,400 12,600 marginal benefit 6,400 3,200 1,600 800 400 200 marginal cost 2,500 2,500 2,500 2,500 2,500 2,500 Explicit costs (air fares) are \$500 . Implicit costs (from foregone rental income) are \$1,000 . So, the cost per weekend is \$1,500 .
QUESTION 4 (demand for coffee) If the price of coffee is 3.99, how many cups should I buy? A) 1 B) 2 C) 3 D) 4 E) 5 cups total benefit 1 10 2 18 3 24 4 28 5 30 6 30

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cups total benefit marginal benefit 1 10 10 2 18 8 3 24 6 4 28 4 5 30 2 6 30 0 answer to question 4 If the price of coffee is 3.99, how many cups should I buy? A) 1 B) 2 C) 3 D) 4 E) 5
cups total benefit marginal benefit 1 10 10 2 18 8 3 24 6 4 28 4 5 30 2 6 30 0 demand for coffee As the price of coffee goes up, I’ll be willing to buy fewer cups. That is, I will demand less coffee when the price is higher.

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## This note was uploaded on 08/03/2010 for the course ECON 1 taught by Professor Bergstrom during the Summer '07 term at UCSB.

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ch3a - Chapter 3 Supply and Demand Tuesday June 22 CHAPTER...

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