midterm 1 solutions

midterm 1 solutions - 1. Define/explain the following...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Define/explain the following concepts in one line. (10 pts ) a. Vertical interpretation of the supply curve Corrected: (Also see textbook p.31, Chp 2): Under the vertical interpretation you start with a quantity and go up to the supply curve to read the corresponding marginal cost on the vertical axis. It tells you the marginal cost (or, the opportunity cost) of the last unit supplied. (10 pts) b. Marginal rate of substitution - The rate at which you can substitute one good for another good without changing your overall level of satisfaction -> Give full credit - The negative of the slope of an indifference curve at some point (20 pts) 2. What are the determinants of demand? How does each affect the demand schedule? Determinants: - Change in consumer taste (a sudden change in taste, such as a liking of a certain good, increases the demand for it, shifting the curve to the right) - Change in the number of buyers (an increase in the number of buyers for a good increases the demand for it, shifting the curve to the right, vice versa) - Change in consumer income (Assuming the goods are normal, an increase in consumer income would increase the demand for a good) - Change in prices of complementary and substitute goods (The demand for a good would increase if the price of its substitute good increased. The demand for a good would decrease if the price of its
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

midterm 1 solutions - 1. Define/explain the following...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online