1001majorch7

1001majorch7 - ECON1001AB IntroductiontoEconomicsI...

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ECON 1001 AB Introduction to Economics I Dr. Ka-fu WONG Seventh week  of tutorial sessions KKL 925, KKL 1010, K812, KKL 106 Clifford CHAN KKL 1109 givencana@yahoo.ca
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Covered and to be covered Covered the week before the break Dr. Wong finished up to kf007.ppt You should have at least read up to Chapter 7 Efficiency and Exchange If not, please press hard on it. Start reading Chapter 8 The Quest for Profit and the Invisible Hand To be covered in the tutorial sessions this week Problems in chapter 7: #1, #3, #5, #7 and #9 An extra question relevant to Chapter 7 You are advised to work on the even ones as well
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Problem #1, Chapter 7 (1) Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are as shown in the diagram. Calculate The weekly consumer surplus The weekly producer surplus The maximum weekly amount that producers and consumers in Lincoln would be willing to pay to be able to buy and sell used DVDs in any given week
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Problem #1, Chapter 7 (2) S D 48 18 2 6 0 6 7.5 10.50 12 Quantity (DVDs/week) Price ($/DVD)
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Solution to Problem #1 (1) The weekly consumer surplus Recall consumer surplus refers to the difference between consumer’s reservation price and the actual market price Graphically, it is the area under the demand curve but above the actual market price In this problem, the equilibrium is achieved at a a price where Q(D) = Q(S) The equilibrium price is $10.50 per DVD At an equilibrium price of $10.50 the corresponding equilibrium quantity is 6 units of DVD per week
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Solution to Problem #1 (2) The weekly consumer surplus (1/2) (Highest consumer’s reservation price – actual market price) * actual market quantity (1/2) ($12 - $10.50) * 6 = $4.5 The weekly producer surplus Recall producer surplus refers to the difference between producer’s reservation price and the actual market price Graphically, it is the area above the supply curve but under the actual market price
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Solution to Problem #1 (3) The weekly producer surplus (1/2) (Actual market price – lowest producer’s reservation price) * actual market quantity (1/2) ($10.50 - $6) * 6 = $13.5 The maximum weekly amount that producers and consumers in Lincoln would be willing to pay in a week In other words, it refers to the total gains from trading in used DVDs- the total economic surplus Total economic surplus = consumer surplus + producer surplus Total economic surplus = $4.5 + $13.5 = $18 per week
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Problem #3, Chapter 7 (1) The Kubak crystal caves are renowned for their stalactites and stalagmites. The warden of the caves offers a tour each afternoon at 2pm sharp. The cave can be shown to only four people per day without disturbing their fragile ecology. Occasionally, however, more than four people want to see the caves on the same day. The following table lists the people who wanted to see the caves on September 24, 2003, together with their respective times of arrival and reservation prices for taking that day.
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1001majorch7 - ECON1001AB IntroductiontoEconomicsI...

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