Q: Given the demand function $$Q_d = 12 - 2P$$, what is the consumer surplus if the price is $$P = 4$$?

$$\frac{1}{2} \times (6) \times (2) = 6$$

Question 1

Suppose you have a budget of $$300 to spend on jeans and sweaters, where jeans cost 50 $$each and sweaters cost $25 each. What is the equation for your budget constraint?

Accepted Answer

$$50j + 25s = 300$$

Question 2

If the price of jeans increases from $$50 to 75$$, what happens to the budget line for jeans and sweaters (with sweaters still at $$25 and a 300 $$budget)?

Accepted Answer

The budget line pivots inward, reducing the maximum number of jeans that can be purchased.

Question 3

What does the slope of the budget line represent in the context of jeans and sweaters?

Accepted Answer

The opportunity cost of one good in terms of the other.

Question 4

Given the budget constraint $$50j + 25s = 300$$, what is the opportunity cost of one additional pair of jeans in terms of sweaters?

Accepted Answer

2 sweaters

Question 5

Why does the demand curve typically have a negative slope?

Accepted Answer

Because as price increases, quantity demanded decreases due to the law of demand.

Question 6

If a consumer's marginal benefit per dollar spent on sweaters is greater than that for jeans, what should the consumer do to maximize utility?

Accepted Answer

Buy more sweaters and fewer jeans.

Question 7

Suppose the price of a concert ticket increases from $$20 to 30$$, while the price of a movie ticket remains at $$15. If Henry has 180 to $$spend, how does the budget line change?

Accepted Answer

The budget line pivots inward, reducing the maximum number of concert tickets that can be purchased.

Question 8

What is consumer surplus?

Accepted Answer

The difference between what a buyer is willing to pay and what the buyer actually pays.

Question 9

If the price of jeans increases from $$50 to 75 $$and the quantity demanded falls from 3 to 2, what is the arc price elasticity of demand?

Accepted Answer

$$\frac{(2-3)}{(2+3)/2} \div \frac{(75-50)}{(75+50)/2} = \frac{-1}{2.5} \div \frac{25}{62.5} = -0.4$$

Question 10

Which of the following best describes the 'income effect' when the price of a normal good falls?

Accepted Answer

The consumer feels effectively richer and buys more of the good.

Question 11

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 12

Suppose the price elasticity of demand for a product is $$|E_d| = 0.5. If $$the firm increases the price, what will happen to total revenue?

Accepted Answer

Total revenue will increase.

Question 13

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of production.

Question 14

If a good has an income elasticity of demand less than zero, what type of good is it?

Accepted Answer

An inferior good.

Question 15

Given the demand function $$Q_d = 12 - 2P$$, what is the consumer surplus if the price is $$P = 4$$?

Accepted Answer

$$\frac{1}{2} 	imes (6) 	imes (2) = 6$$

Question 16

If the marginal benefit of the third beer is $$5$$ and the price of a beer is $$10$$, what is the marginal benefit per dollar for the third beer?

Accepted Answer

$$\frac{5}{10} = 0.5$$

Question 17

If your income increases by 10% and your consumption of yogurt increases by 16%, what is the income elasticity of demand for yogurt?

Accepted Answer

$$\frac{16\%}{10\%} = 1.6$$

Question 18

Which of the following statements about utility functions is correct according to the study materials?

Accepted Answer

Economists do not believe people actually have utility functions, but preferences can be represented by them if they are complete and transitive.

Question 19

Why is economics sometimes called the 'dismal science'?

Accepted Answer

Because Thomas Carlyle used the term in debates about slavery and social policy, not because of Malthus' predictions.

ECN104 Lecture 5

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