Question 1

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.

Accepted Answer

When the price of rice increases, people will try to substitute other goods for rice, resulting in a negative substitution effect. However, as rice is an inferior good, the increase in price means that people feel poorer and have less purchasing power, leading to a positive income effect. Therefore, the overall change in rice consumption will be negative due to the combination of a negative substitution effect and a positive income effect.

Question 2

Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
-See Scenario 4.1. What is Daniel's income-consumption curve?

Accepted Answer

Since the marginal utility of cake and donuts are equal to the quantity of the other good, we can assume that Daniel will allocate his income equally between the two goods to maximize his utility. With an income of $240 and both goods priced at $3, Daniel can afford to purchase a total of 80 units of either good. Therefore, his consumption bundle will be evenly split between cake and donuts, resulting in a linear income-consumption curve where Qc = Qd.

Question 3

Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
-See Scenario 4.1. What is Daniel's budget constraint?

Accepted Answer

The budget constraint represents the total amount of money available to spend on goods, given their prices and the quantities purchased. Since Daniel has $240 to spend on cake and donuts, both priced at $3, the correct equation is 240 = 3Qc + 3Qd, where Qc and Qd are the quantities of cake and donuts, respectively.

Question 4

Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
-See Scenario 4.1. What quantity Qc will maximize Daniel's utility given the information above?

Accepted Answer

To maximize utility, Daniel should allocate his income in such a way that the marginal utility per dollar spent on both goods is the same:

MUc/Pc = MUd/Pd

Substituting the given marginal utility functions and prices, we get:

Qd/3 = Qc/3

Simplifying this expression, we get:

Qd = Qc

Now, using the budget constraint:

3Qc + 3Qd = 240

Substituting Qd = Qc, we get:

6Qc = 240

Qc = 40

Therefore, the quantity of cake that will maximize Daniel's utility is 40.

Question 5

When demand is elastic, an increase in price causes the seller's total revenue to:

Accepted Answer

When demand is elastic, a small increase in price leads to a large decrease in the quantity demanded. As a result, total revenue will decrease because the increase in price does not offset the decrease in quantity sold.

Question 6

Figure 4.3.1
-Refer to Figure 4.3.1 above. The figure depicts the individual demands of the only three consumers in the market for good X. After constructing the market demand curve, we determine that quantity demanded at a price of $10.000 is:

Accepted Answer

At a price of $10.000, Consumer 1 demands 6 units, Consumer 2 demands 5 units, and Consumer 3 demands 6 units. Therefore, the total quantity demanded in the market at a price of $10.000 is 6+5+6 = 17 units.

Question 7

Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
-See Scenario 4.1. Holding Daniel's income and Pd constant at $240 and $3 respectively, what is Daniel's demand curve for cake?

Accepted Answer

Since Daniel only derives utility from cake and donuts, his budget constraint can be expressed as:
240 = 3Qc + 3Qd
But we know that MUc = Qd and MUd = Qc, so we can rewrite this as:
240 = 3Qc + 3(MUc)
240 = 3Qc + 3Qd
240 = 3Qc + 3(Qc/3)  (substituting Qd = Qc/3 from MUd = Qc)
240 = 4Qc
Qc = 60
So Daniel's demand curve for cake is:
Qc = 240/(3 + Pc) 
(substituting Qc = 60 from budget constraint)

Question 8

The horizontal summation of the demands of each consumer at different price levels is called:

Accepted Answer

The horizontal summation of the demands of each consumer at different price levels provides the market demand curve. It represents the total amount of a good or service that all consumers are willing and able to buy at different price levels.

Question 9

Scenario 4.2:
Suppose that the demand for artichokes (Qa) is given as:
Qa = 200 - 4P
-Use the information in Scenario 4.2. Suppose that the price of artichokes is increased slightly from $10. The total expenditure by consumers on artichokes will ________ and the number of artichokes sold will ________.

Accepted Answer

When the price of artichokes is increased, the quantity demanded will decrease, as per the inverse relationship between price and quantity demanded. Using the demand equation Qa = 200 - 4P, if the price increases from $10, the new price (P) will be $11. Calculation shows that the new quantity demanded (Qa) will be:
Qa = 200 - 4(11)
Qa = 148
The original quantity demanded (Qa) when P = $10 was:
Qa = 200 - 4(10)
Qa = 160
Therefore, the number of artichokes sold will fall from 160 to 148, and the total expenditure by consumers will increase due to the higher price, resulting in a rise in total expenditure. Therefore, the correct answer is B.

Question 10

Figure 4.3.2
-Refer to Figure 4.3.2 above. How do total expenditures on movie tickets vary along the demand curve?

Accepted Answer

The answer of  Figure 4.3.2
-Refer to Figure 4.3.2 above....

Question 11

Figure 4.3.1
-Price elasticity of demand measures the:

Accepted Answer

Price elasticity of demand measures the responsiveness or sensitivity of the quantity demanded of a good or service to changes in its price. It measures the percentage change in quantity demanded for a one percent change in price. Therefore, option D - sensitivity of quantity demanded to changes in price, is the correct choice.

Question 12

You have just won a cash award of $500 for academic excellence.

Accepted Answer

The income effect of the award will be larger than its substitution effect because the individual's income has increased. The substitution effect would only come into play if the award had induced the individual to change their behavior in terms of how much they study or how they allocate their time between academic and non-academic activities. However, there is no indication that the award has incentivized any such changes.

Question 13

When demand is inelastic, an increase in price causes the seller's total revenues to:

Accepted Answer

When demand is inelastic, it means that the quantity demanded does not decrease significantly as the price increases. Therefore, an increase in price leads to an increase in total revenue because the decrease in quantity demanded is not enough to offset the higher price.

Question 14

Figure 4.3.2
-Refer to Figure 4.3.2 above. The elasticity of the demand for the curve in the figure can be described as:

Accepted Answer

The answer of  Figure 4.3.2
-Refer to Figure 4.3.2 above....

Question 15

Figure 4.3.1
-Aggregation examples of market demand could include:

Accepted Answer

All of the listed options are examples of aggregation of market demand.

Question 16

When demand is elastic, an increase in price leads to:

Accepted Answer

When demand is elastic, consumers are very sensitive to changes in price, so an increase in price will lead to a significant decrease in quantity demanded. This decrease in quantity demanded will result in a larger decrease in total expenditures than the increase in price, leading to a decrease in total expenditures overall.

Question 17

The domestic demand for wheat is Q_DD = 1000 - 25P, and the export demand is Q_DE = 500 - 25P. Graph the domestic, export, and total demand curves for wheat.

Accepted Answer

The answer of The domestic demand for wheat is Q_DD...

Question 18

Scenario 4.2:
Suppose that the demand for artichokes (Qa) is given as:
Qa = 200 - 4P
-Use the information in Scenario 4.2. What is the price elasticity of demand if the price of artichokes is $10?

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). Given the demand equation Qa = 200 - 4P, when P = $10, Qa = 200 - 4(10) = 160. To find the PED at P = $10, we differentiate Qa with respect to P, which gives -4. The PED formula can also be expressed as (dQ/dP)*(P/Q). Substituting the values, we get (-4)*(10/160) = -0.25.

Question 19

When demand is inelastic, an increase in price leads to:

Accepted Answer

When demand is inelastic, it means that the quantity demanded does not decrease significantly as the price increases. Therefore, an increase in price leads to an increase in total expenditures because consumers continue to buy almost the same amount despite the higher price.

Question 20

Donald derives utility from only two goods, carrots (Qc) and donuts (Qd). His utility function is as follows:
U(Qc,Qd) = (Qc)(Qd)
The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Donald has an income (I) of $120 and the price of carrots (Pc) and donuts (Pd) are both $1.
a. What is Donald's budget line?
b. What is Donald's income-consumption curve?
c. What quantities of Qc and Qd will maximize Donald's utility?
d. Holding Donald's income and Pd constant at $120 and $1 respectively, what is Donald's demand curve for carrots?
e. Suppose that a tax of $1 per unit is levied on donuts. How will this alter Donald's utility maximizing market basket of goods?
f. Suppose that, instead of the per unit tax in (e), a lump sum tax of the same dollar amount is levied on Donald. What is Donald's utility maximizing market basket?
g. The taxes in (e) and (f) both collect exactly the same amount of revenue for the government, which of the two taxes would Donald prefer? Show your answer numerically and explain why Donald prefers the per unit tax over the lump sum tax, or vice versa, or why he is indifferent between the two taxes.

Accepted Answer

The answer of Donald derives utility from only two goods,...

Quiz 4: Individual and Market Demand

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a change in rice consumption, and the income effect leads to a change in rice consumption.

When demand is elastic, an increase in price causes the seller's total revenue to:

Figure 4.3.1 -Refer to Figure 4.3.1 above. The figure depicts the individual demands of the only three consumers in the market for good X. After constructing the market demand curve, we determine that quantity demanded at a price of $10.000 is:

The horizontal summation of the demands of each consumer at different price levels is called:

Scenario 4.2: Suppose that the demand for artichokes (Qa) is given as: Qa = 200 - 4P -Use the information in Scenario 4.2. Suppose that the price of artichokes is increased slightly from $10. The total expenditure by consumers on artichokes will and the number of artichokes sold will .

Figure 4.3.2 -Refer to Figure 4.3.2 above. How do total expenditures on movie tickets vary along the demand curve?

Figure 4.3.1 -Price elasticity of demand measures the:

You have just won a cash award of $500 for academic excellence.

When demand is inelastic, an increase in price causes the seller's total revenues to:

Figure 4.3.2 -Refer to Figure 4.3.2 above. The elasticity of the demand for the curve in the figure can be described as:

Figure 4.3.1 -Aggregation examples of market demand could include:

When demand is elastic, an increase in price leads to:

The domestic demand for wheat is Q_DD = 1000 - 25P, and the export demand is Q_DE = 500 - 25P. Graph the domestic, export, and total demand curves for wheat.

Scenario 4.2: Suppose that the demand for artichokes (Qa) is given as: Qa = 200 - 4P -Use the information in Scenario 4.2. What is the price elasticity of demand if the price of artichokes is $10?

When demand is inelastic, an increase in price leads to:

Quiz 4: Individual and Market Demand

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.

When demand is elastic, an increase in price causes the seller's total revenue to:

Figure 4.3.1 -Refer to Figure 4.3.1 above. The figure depicts the individual demands of the only three consumers in the market for good X. After constructing the market demand curve, we determine that quantity demanded at a price of $10.000 is:

The horizontal summation of the demands of each consumer at different price levels is called:

Figure 4.3.2 -Refer to Figure 4.3.2 above. How do total expenditures on movie tickets vary along the demand curve?

Figure 4.3.1 -Price elasticity of demand measures the:

You have just won a cash award of $500 for academic excellence.

When demand is inelastic, an increase in price causes the seller's total revenues to:

Figure 4.3.2 -Refer to Figure 4.3.2 above. The elasticity of the demand for the curve in the figure can be described as:

Figure 4.3.1 -Aggregation examples of market demand could include:

When demand is elastic, an increase in price leads to:

The domestic demand for wheat is QDD = 1000 - 25P, and the export demand is QDE = 500 - 25P. Graph the domestic, export, and total demand curves for wheat.

Scenario 4.2: Suppose that the demand for artichokes (Qa) is given as: Qa = 200 - 4P -Use the information in Scenario 4.2. What is the price elasticity of demand if the price of artichokes is $10?

When demand is inelastic, an increase in price leads to:

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a change in rice consumption, and the income effect leads to a change in rice consumption.

The domestic demand for wheat is Q_DD = 1000 - 25P, and the export demand is Q_DE = 500 - 25P. Graph the domestic, export, and total demand curves for wheat.