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Comm220 Ch4 Quick Quiz correction

# Comm220 Ch4 Quick Quiz correction - Bundle after rebate...

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1 CHAPTER 4 – Aglyph1197SWERS TO THE QUICK QUIZ QUESTIOglyph1197S Q1 No. One normal and one inferior or both normal. Q2 a. True. As P 1 ↓ the price ratio ↓ and hence the MRS ↓. b. True. Consumption ↑ as P ↓ and hence utility ↑. c. False. Upwards for normal goods and downwards for inferior goods. Q3 a. Consumption decreases from 5,000 to 4,000. b. Consumption increases from 4,000 to 4,195. c. Better off. The tax rebate is enough to allow her to purchase the original bundle yet she chose not to. We can therefore infer that she found a better bundle that gave her a higher level of utility. Q4 a. b. 30. c. Original bundle

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Unformatted text preview: Bundle after rebate Other goods Food P 15 30 Q x-intercept (when P = 0) = 15 / 0.5 = 30 y-intercept (when Q = 0) = 15 P = 15 – 0.5Q P 15 5 20 30 Q The loss of consumer surplus = A + B = \$125 A B 2 d. 16. Since Revenue (P=5) = \$100 < Revenue (P=7), demand is inelastic. e. Q5 a. Estimated slope of the demand curve = –40. Point elasticity (P=45) = –1.5 Point elasticity (P=30) = –0.67 Arc elasticity = –1 b. Elasticity = –1, revenue will remain unchanged. Elasticity = –1.5, revenue will fall. Elasticity = –0.67, revenue will rise. P 15 7 5 16 20 30 Q The loss of consumer surplus = C + D = \$36 C D...
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Comm220 Ch4 Quick Quiz correction - Bundle after rebate...

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