ECON 101 Study Guide - Midterm Guide: Deadweight Loss, Marginal Revenue, Marginal Cost

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ECON 101 Full Course Notes

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Unless a question explicitly says otherwise, assume that all demand curves slope downward, all supply curves slope upward, and there are no externalities. For the true / false section, mark box a for true and box b for false. Each correct answer adds 2 points to your score. For the multiple choice section, mark the best answer choice. Each correct answer adds 5 points to your score. Each blank answer adds 1 point to your score. Multiple choice: ellie and mac are the only two consumers of hamburgers. Their marginal bene t sched- ules are given below along with the marginal cost schedule for all producers together. The government decides the equilibrium price of is too high and imposes a price ceiling of on a hamburger. After the price ceiling is in place, mac is the rst in line and he purchases all of the available hamburgers.

Related Questions

Are the following statements true or false? A simple yes-no answer will not suffice. Explain, with the use of diagrams where necessary.

1. The utility function u(a, b) = aâ0.2 b0.8 violates the non-satiation assumption.

2. If a consumer is a net borrower, an increase in the interest rate must reduce his borrowing, if consumption in each date is a normal good.

3. If a good has income elasticity less than one, it is inferior.

4. If the demand curve for good A is everywhere flatter than that of good B, then good A has a higher price elasticity of demand.

5. If a given set of consumer preferences are transitive, then there must be an infinite number of indifference curves describing those preferences.

6. If there are two goods, A and B, and A is Giffen, then B must be a price-substitute for A.

Please answer all 6 true/false questions and explain your asnwer. Use diagrams when necessary to explain your answer.

For each of the following decide whether the statement is true, false or uncertain and explain why. Your explanation determines your grade; you will receive no credit for an answer without an explanation.

1. Since positive externalities do not harm participants outside the market, there is no rationale for government intervention

2. An increase in demand in a perfectly competitive market will cause all firms to earn positive economic profits in long-run equilibrium.

3. Image Steve is a utility maximizing consumer who purchases music downloads and books. If the price of books decreases, Steve will consume more books and fewer music downloads.

4. As a result of technological improvements, the cost of extending life expectancy declined steadily in the US during the 20th century.

Determinates of Price Elasticity

K-Mart-- Determinants of demand elasticities

1. Generally, the elasticity of demand for a product will be greater when there are:

(a) the larger number of substitutes,
(b) the greater proportion of income an item takes,
(c) the less the item is considered to be a necessity, and
(d) the longer length of time allowed for adjustment to change the price of the good.

2. K-Mart, at its web-site, K-Mart.com posts a weekly sales circular on selected merchandise, organized by department. It must be concluded that the demand for these products are elastic. The decrease in price will increase total revenue. Check out this week's specials and, select ten items.

Answer these questions:
How many specials score 1 point (or 1 yes) for meeting the criterion of each determinant above.
Which specials score 4 points (or 4 yes) for meeting the criterion of each determinant above?
Which specials score 0 (or no yes)?
Why would K-Mart include any item that scored less than a 3 (or less than 3 yes) ?

If the product meets all the determinates of elasticity the more elastic the product. Such as a diamond necklace. So the necklace may go on sale or the store may offer unlimited cleaning of the diamonds or storage to encourage people to buy the necklace.

Whereas a product that meets a few of the determinates of elasticity are considered necessities.

For Example: Do not use any of my products.

Determinates	Dial Body Soap	Tide Laundry Det.	Cigarettes	Generic Heart Medication
Does the product have a large number of substitutes?	Yes/1pt.	Yes/1pt.	0	0
Does the product require a large proportion of your income?	0	0	0	0
Is the product a necessity?	0	0	Yes/1pt.	Yes/1pt.
Do you take a long time to think about buying the product?	0	0	0	0
Total for Each Product	1	1	1	1

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ECON 101 Study Guide - Midterm Guide: Deadweight Loss, Marginal Revenue, Marginal Cost

ECON 101 Full Course Notes

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