ECON 2302

HOMEWORK PROBLEMS

FOR PART 3

 

The purpose of doing these problems is to increase your understanding of the material. It will help you on quizzes and exams. You do not have to turn in this work. I will not go over these problems specifically in class. Read the assigned chapters and come to class. Check on the completed work which is on reserve in the SCC library. After doing that, if you still have difficulties, come to see me during my office hours.

                                                                                                ---- Dr. Cohick

 

1. Determine the price elasticity of demand using the percent change method for each of the following three demand curves (assume a shift from point A to point B):

P and Q for  Point A

P and Q for  Point B

%change for P

%change for Q

Elastic, inelastic, or unit elastic?

$10        100

$  8      140

 

 

 

$  8        200  

$15      120

 

 

 

$  7          40

$10        33

 

 

 

 

2. Fill in the blanks in this table:

Demand is….

…and the price

…so TR (rises, falls, remains the same)?

elastic

falls

 

inelastic

rises

 

unit elastic

falls

 

inelastic

falls

 

elastic

rises

 

unit elastic

rises

 

 

3. Fill in the blanks in this table:

Price…..

…and quantity supplied

Is supply elastic, inelastic, or unit elastic?

Rises 10%

Rises 6%

 

Rises 1%

Rises 6%

 

Falls 20%

Falls 10%

 

 

4. For price elasticity of demand, fill in the blanks in this table:

Characteristic:

Elastic

Inelastic

Are substitutes available?

 

 

Is the price large relative to income?

 

 

Must you have it right now?

 

 

Are you addicted to it?

 

 

 

 

5. Fill in the blanks in this table:

Number of hours playing cards

Total Utility (TU)

Marginal Utility (MU)

1

100

 

2

 

78

3

210

 

 

 

6. The marginal utility of good X is 40 and the price of good X is $10. The marginal utility of good Y is 50 and the price of good Y is $12. Which of these two goods would you be more likely to purchase one more of? ____________________ Why?  _______________________________ ______________________________________________________________________________

 

 

7. From prior experience, Joe knows his utility from drinking bottles of beer. The marginal utility he receives from the first six beers he drinks in order is: 20, 18, 12, 7, 1, and -6. He must pay 5 for each beer. Answer the questions below:

a.    After which beer should he stop? ______________________

b.    If the bar raises its price to 8 for each beer, after which beer should he stop? ______________

c.    If he drinks beer at his buddy’s house for free, how many will he drink? ____________

d.    How can marginal utility be negative (like for the last beer)? ___________________ _______________________________________________________________________

 

 

8. Write down the equation that describes consumer equilibrium for peas and corn:

 

If news stories report that eating more corn will insure a healthier, longer life, which of the four variables above change? __________________ In response, how will the consumer change her buying habits? ________________________________________________________________

On another day, when the consumer gets to the market, she finds out that the price of peas has increased. How would the consumer change her buying habits? __________________________

_____________________________________________________________________________

 

 

9. Tell whether the following curves are steep or shallow:

1.      Elastic demand curve _____________________

2.      Inelastic demand curve ____________________

3.      Elastic supply curve ______________________

4.      Inelastic supply curve _____________________