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Lecture 11

# Lecture 11-Review

Department
Economics
Course Code
ECO101H1
Professor
Jack Carr
Lecture
11

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Thursday, October 22nd, 2009.
Review
Opportunity Costs
You choose to attend university for one year. Tuition and books cost \$5000. Room and
board cost \$7500. What is the opportunity cost of attending university if next best
alternative is:
1) To work and earn \$25000 while living at home, where room and board is free
\$12,500
25,000
\$37,500
2) To work and earn \$25000 while sharing an apartment and paying \$7500 for room
and board \$ 5,000
25,000
\$30,000
3) to travel for a year, which is free because your uncle will pay
\$12500
Satisfaction from Travel
4) to travel for a year, which will cost \$20,000
\$12,500
Satisfaction - 20,000
Satisfaction - \$7,500
The following are the elasticities for Volkswagen Beetles:
Price elasticity of demand = 2
Income elasticity of demand = 1.5
The supply of Beetles is elastic.
True or False?
a. A 10% increase in the price of a Beetle will reduce the quantity demanded by
20% (T)
b. An increase in consumer income will increase the price and quantity of Beetles.
Since price elasticity of demand is greater than 1, total revenue will go down. (F)
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