ECON 3030 Chapter Notes - Chapter 14-15: Reservation Price, Luxury Goods, Normal Good

56 views2 pages

periwinklecrab682

8 Jan 2018

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Compensating variation - how much income is needed to restore the consumer back to their original indi erent curve after a certain price change. Econ 3030 - chapter 15 - market demand. Market demand is the sum of all individual choices. X"(p1, p1, m1, , mn) = xi"(p1, p2, mi) Intensive margin - when the price of a good changes and the consumer decides to consume more or less of one good or the other but still ends up consuming some of both goods. Extensive margin - when consumers are deciding whether or not to enter the market for one of the goods. Price elasticity of demand is the percent change in the quantity demanded over the precent change in price. Revenue is the price of a good times the quantity of the good sold. Income elasticity of demand is the percent change in quantity demanded over the percent change in income.

Related Questions

(a) The demand curve is given by D = 8002p. The price rises from 100 to 150. What is the change in consumer surplus?

Unrelatedly, if the utility is U = x3y, then demands are x = (3I)/(4px) and y = (I)/(4py). Initially, I = 15000 and px = 80 and py = 100. Then the price of good y increases to 207.36.

(b) How much would you at most be willing to pay to avoid the price change (Calculate EV)?

sapphireimpala953

1. (Law of Diminishing Marginal Utility) Some restaurants offer âall you can eatâ meals. How is this practice related to diminishing marginal utility? What restrictions must the restaurant impose on the customer in order to make a profit? (Answers may vary)

2. (Marginal Utility) Is it possible for marginal utility to be negative while total utility is positive? If yes, under what circumstances is it possible?

3. (Role of Time in Demand) In many amusement parks, you pay an admission fee to the park but you do not need to pay for individual rides. How do people choose which rides to go on? (Answers may vary)

4. What is the diamonds-water paradox, and how is it explained? Use the same reasoning to explain why bottled water costs so much more than tap water.

5. Please read Jane Katzâs âThe Joy of Consumption: We Are What We Buy,â in the Federal Reserve Bank of BostonâsRegional Review at http://www.bos.frb.org/economic/nerr/rr1997/winter/katz97_1.htm and briefly discuss/summarize the evidence that Katz cites about how the rising value of time has affected consumer spending patterns.

6. Suppose that marginal utility of Good X = 100, the price of X is $10 per unit, and the price of Y is $5. Assuming that the consumer is in equilibrium and is consuming both X and Y, what must the marginal utility of Y be? (Hint: Please apply the formula: MUx/Px = MUy/Py)

7. What is consumer surplus? What happens to consumer surplus as price level falls?

8. Do you think any good which does not exhibit the law of diminishing marginal utility?

PROBLEM SET ONE -2 - PRICE-ELASTICITY OF DEMAND

	P₁	P₂	Q_D1	Q_D2	I	II	III	IV	V
1	1	2	10	5
2	5	3	40	90
3	12	20	200	200
4	3	2	9	9
5	0.40	1.40	30	15
6	1.2	4.0	20	15
7	7.5	4.6	40	30
8	5	5.000â¦01	1x10⁶	0
9	5	4.9999â¦.	10	1x10⁹
10	6	12	12	6
11	18	36	360	180
12	7	15	24	16
13	7	16	78	78
14	25	65	150	100
15	65	91	1300	780
16	4	5	21	11
17	8	4	30	54
18	140	275	625	495
19	78	91	780	780
20	91	78	780	780

Column I - determine the Price-Elasticity of Demand Coefficient. Find material in Chapter 6 and the Powerpoint of Elasticity Chap 004 19e.ppt

change in quantity demanded change in price

E_D = ---------------------------------------- â ----------------------------

sum of quantities demanded / 2 sum of prices / 2

The data in the first four columns represent price (P) and quantity demanded (Qd) in time 1 (before change in price) and time 2 (after change in price). Note that results should be expressed in absolute terms (see paragraph Elimination of Minus Sign). For example, -1 should be expressed as â1â.

Column II â Based on topic concerning Interpretations of E_D, indicate which applies based on how the quantity demanded changed subsequent to a change in price (elastic, inelastic, etc.)

Column III - you need to determine if the good in question would be considered a necessity, a luxury or neither.

Column IV â Indicate, in monetary terms, how much is the change in total revenue or total expenditure (TR = P X Q_D), from the first price level to the second.

Column V - the direction of the change, also in monetary terms, that is, increasing or decreasing, and by how much? (show a + sign for increasing and a â sign for decreasing).

Note: for any monetary result please include the applicable currency symbol ($, â¬, etc.)

salmoneagle868

ECON 3030 Chapter Notes - Chapter 14-15: Reservation Price, Luxury Goods, Normal Good

Document Summary

Get access

Related Documents

ECON 3030 Chapter Notes - Chapter 2-3: Budget Constraint, Composite Good, Substitute Good

ECON 3030 Chapter Notes - Chapter 10 and 12: Real Interest Rate, Net Present Value

ECON 3030 Chapter Notes - Chapter 6-7: Engel Curve, Demand Curve, Statics

Related Questions