PS5+homework

# PS5+homework - Intermediate Microeconomics 2010 Problem Set...

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Intermediate Microeconomics, 2010 Problem Set 5: Homework due: Wed/Thur 27/28 1. In a market with linear demand: D = a bp , if the price rises from p = 1 to p = 2 (assume that a and b are such that demand at both prices is positive), what is the loss in consumer surplus that results from this increase? (Recall that consumer surplus is an area under inverse demand.) 2. Suppose Cindy likes CDs and going to the movies. (a) She wants to go to the movies at most twice per month. Her willingness to pay for one movie is \$30. Once she has seen a movie, her willingness to pay for a second movie is \$15. If the price per lm is p = 25, how often would she go to the movies? If the price per lm is \$10, how often would she go to the movies? For each price, what is her total (monthly) surplus? What is her loss in (monthly) surplus if the price increases from \$10 to \$25? (b) Her demand function for CDs is D ( p ) = 10 p . Assuming CDs are divisible, what is her consumer surplus at a price p = 5 and at a price p = 2? What is her loss in consumer surplus if the price increases from \$2 to \$5?

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• Summer '08
• Malley

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