PS 2 202 marking guide (Winter 2011)

# PS 2 202 marking guide (Winter 2011) - 202 Problem Set 2...

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202 Problem Set 2 marking guide (Winter 2011) (1) 25 points total (a) 6 points total 1 point: seeing that x is constant 1 more point: definition of elasticity 1 more points: connecting changing P x , unchanging x 1 more point: understanding (calculating) elasticity to be 0 2 more points: drawing total spending curve as linear and upward-sloping (b) 9 points total 1 point: defining total spending = P x x 1 more point: understanding that total spending is constant 1 more point: definition of elasticity 2 more points: seeing that percentage change in P x and percentage change in x are offsetting if TS remains constant 2 more points: explaining why elasticity = 1 2 more points: drawing total spending curve as rectangular hyperbola (i.e., a curve where P x x is constant) (c) 4 points total 2 points: seeing that Pat’s perfectly inelastic demand is extreme and probably an exaggera- tion, and that Ron’s unit elastic demand may also be unrealistic if gas is inelastically deman- ded. 2 more points: arguing that Pat’s demand more likely for smaller price fluctuations (being unresponsive less costly when fluctuations smaller), and Ron’s is more likely for larger price fluctuations (eliminates possibility of enormous gas bill in this case) (d) 6 points total 2 points: seeing that portion of demand curve above initial price is inelastic (since higher

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## This note was uploaded on 10/05/2011 for the course ECON 202-1 taught by Professor Zelder during the Spring '11 term at Northwestern.

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PS 2 202 marking guide (Winter 2011) - 202 Problem Set 2...

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