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Canada (158,271)
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ECO105Y1 (83)
Paul Cohen (14)
Chapter 2

Chapter 2 Review Questions.docx

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University of Toronto St. George
Paul Cohen

Chapter 2: Making Smart Choices (The Law of Demand) 2.1- Describe What determines you willingness to pay for a product/service. 2.2-Identify what smart choices depend on marginal benefit, not total benefit, and explain what changes marginal benefit. 2.3-Describe the relationship between price and quantity demanded, and identify the role of substitutes. 2.4-Explain the difference between a change in quantity demanded and a change in demand, and distinguish five factors that change demand. 2.5-Define elasticity of demand and explain how it determines business pricing strategies. 2.1 Put your money where your mouth is: Weighing benefit’s, Costs, and Substitutes. 1. What is the difference between wants and demands? 2. How many songs or albums by your favorite musician or group have you bought? How many songs have you copied or downloaded? What determined your choice between buying and downloading? 3. You have just started at a college that is a 30-minute drive from home or a 90-minute transit ride. How would you make a smart choice between taking transit and buying a car? What are the important issues on the benefits comparison? On the cost comparison? 2.2 Living on the Edge: Smart choices are marginal choices 1. What is marginal benefit, and on what does it depend? 2. Why are you willing to pay more for a diamond than a glass of water even though water is essential for survival and diamonds are an unnecessary luxury? 3. You and your entrepreneurial buddy have a concession stand on the beach. It is a hot, sunny, crowded day, and you are selling a few $5 collapsible umbrellas as sun parasols. The skies suddenly darken, rain begins to pour, and your buddy quickly changes the umbrella price sign to $10. Will you sell more or fewer umbrellas? Explain your thinking; include your analysis of the customer’s decision. 2.3 When the price isn’t right: The Law of Demand -What happens to your buying decision when the additional cost (what you pay) Changes? 1. What is the Law of Demand? 2. You own a car and work at a job that is not accessible by public transit. If the price of gasoline goes up dramatically, does the law of demand
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