# Here quantity supplied p210 at p20 quantity demanded

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to be in equilibrium. Here, quantity supplied = p/2=10 at p=20; quantity demanded = 42-p = 22 at p=20. Since quantity supplied is the smaller at this price, this will be the quantity traded. Def'n: a demand (supply) curve gives the quantity demanded (supplied) as a function of the market price. An inverse demand (supply) curve inverts this relationship, to solve for price as a function of quantity demanded (supplied); this is the relationship we plot, when price is on the vertical axis.

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Name___________________________________________________________ Student number _________________________________ Lab LF0__________ Economics 203 (F01), 2005; midterm 1 Page 2 of 5 c) Jim has won a ticket from the campus radio station to see a jazz band perform at an outdoor concert. Mike has paid \$18 for a ticket for the same concert. On the evening of the concert, there is a tremendous thunderstorm. If Mike and Jim have the same tastes, and both try and maximize their own utility , Mike will be more likely to attend the concert than Jim will. Ans: False: Def'n: utility is the way in which economists measure the level of satisfaction or well-being a consumer/individual receives from a bundle of goods. On the night of the concert, both Mike and Jim must decide whether attending the concert is worth the additional cost of sitting through the thunderstorm. The fact that Mike paid for his ticket, while Jim's was free, should be irrelevant to the attendance decision. The \$18 Mike paid is a sunk cost , and cannot be recovered by any action on his part - hence it is irrelevant to the current decision. B: (26 points) Read all sections of this question before you begin. Please use at least one-half page for your diagram, and label it clearly. Rajan spends all his money on only two goods, bananas and scones. Bananas cost \$0.60/kg, and scones cost \$0.50 each. a) (2) On page 4 , sketch Rajan's budget constraint if he has an income of \$10.00/day. (Put bananas on the horizontal axis.) Ans: horizontal intercept = 100/6; vertical intercept = 100/5=20; budget line is
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