...Solutions for Study Questions #3 - Household Consumption Behaviour 11 Econ 101 - Solutions to Study Questions #3 E. Lau PART A - Short Answer 1. Example Consumer surplus arises because of the law of diminishing marginal utility, and the market charges a single price. In this case the price per good is $2 no matter now many you buy. As you can see from the above diagram, if you are willing to pay $6 for the first unit of the good, but the price is only $2, so $4 is your consumer surplus. You will accumulate consumer surplus until the point where you are just willing to pay the market price for the good. In this diagram, the value of the consumer surplus on the first four moves is $10. 3. is the marginal utility of good A divided by the price of good A. The price of good A can be thought of in terms of money. Therefore, we can rewrite the first equation as where 8 can be thought of as the marginal utility of money ($1.00). If 8Pa > MUa you will not buy A because you would rather have the money. If 8Pa < MUa you will buy good A because you value it more than the money. In fact, you will buy A up to the point where 8Pa = MUa equilibrium condition. From this we can see that but, following the above steps, we can apply similar concept to multi-goods, a, b, c, ... n such that: Solutions for Study Questions #3 - Household Consumption Behaviour 12 Therefore, in equilibrium so . In simpler language, rational consumers maximize utility not just...
Words: 743 - Pages: 3
...ECO 165 Microeconomics Homework Seven 1. Suppose that a firms production function is given by (Q = quantity and L = hours of labor). Suppose throughout that the labor market is competitive, so that marginal resource cost equals the market wage. a. (4 points) Now suppose this firm is in a perfectly competitive market and that the market price is $2. What is the marginal revenue product of the 2nd hour of labor? Briefly explain your answer. b. (6 points) If the market wage is $10, how many hours of labor should this firm hire to maximize profit? Briefly explain your answer. c. (6 points) Now suppose that the firm has market power and that the demand curve they face is given below. How much labor should this firm hire to maximize profit? Assume again that the market wage is $10 and briefly explain your answer. d. (4 points) Briefly explain how the labor demand curve is derived for these firms. 2. (12 points) Briefly describe four reasons, discussed in the textbook, why wages might differ across industries and/or regions. 3. Suppose you are a banker and I offer you the following deal: you give me $1000 today and I will pay you $350 a year from today, $350 two years from today, and $350 three years from today. I argue that this is a good deal for you, since I end up paying you $1050 in return for the $1000 you lent to me, i.e. you make $50. a. (6 points) Assuming the market interest rate is fixed at 6% over the next three years, is this actually...
Words: 516 - Pages: 3
...CHAPTER 1 APPROACHING THE MATERIAL It's the first chapter in the text for a course that most of your students wish they did not have to take. My class opens with an admission that I am very aware of this fact, and have a big job responsibility – to explain why it was worthwhile to spend my life working with economics and that it will pay them to learn why. Chapter 1 is about how economists think, and why they think that way. In my opinion the most important concepts to convey are: 1 Why economists use models instead of collecting facts in an ad hoc manner. The emergency room algorithm seems to work fairly well, possibly because it immediately turns a popular fable (the importance of personalized medical relationships) on its head. The doctor is more likely to make a correct diagnosis when time and information are scarce by treating you as a random sample from the population, asking you questions known to reliably distinguish heart attacks from other conditions, and asking no other questions. That's the same reason you start with supply and demand when faced with a problem in a market you have not encountered before. 2 The most basic ideas of rationality and choice under constraints, plus a refresher on opportunity cost, marginal reasoning, and competition in general. 3 The importance of limited and costly information in models and life. Most students believe that knowledge is power, but only because they have heard it mindlessly repeated by so many authorities...
Words: 3508 - Pages: 15
...Opportunity cost is the cost of alternative that has to be forgone so that one can pursue a given action or produce another product. It can also be defined as the difference amid a chosen option and the next available option. It is useful in choosing the type of product to be produced. The two live together and hence have the same resources and opportunities of producing potatoes or chickens depending on the one's choice. If any linear combination of chickens and potatoes that lies between those extreme points can be produced if he apportions some resources to each, then the following table can be formed. A straight line is formed. In order to get the best alternative for each individual, opportunity cost for each has to be calculated. Opportunity cost is calculated by dividing the lost option by the gained. Opportunity cost of product on the y-axis is obtained by getting reciprocal of the gradient of the line or can be obtained by diving change in horizontal by change in vertical. The opportunity cost of product on the x-axis is obtained by getting the gradient of the line (this is since the line has constant gradient). Trucks are on the y-axis and so the opportunity cost will be the reciprocal of the gradient and that is -0.2. The Phil's opportunity cost of producing trucks is -0.2. Phils's opportunity cost of producing flowers. Michelle's opportunity cost of producing flowers is obtained by dividing the change in lost (trucks) by change in gained (flowers). Change is trucks...
Words: 385 - Pages: 2
...In this memo, I will discuss my experience in playing the Hotel Game. In the Hotel Game, the price depends on the supply and demand. I wanted to sell all of my rooms, because having unsold rooms would mean lost revenue opportunity. The supply in the market was always 10,000 rooms. I needed to make sure that I did not price higher than my competitors since the lower priced rooms would be filled up first. My costs may not rises, but if the demand for my hotel rooms rise because of the season, I would raise my prices to get the best bang for my buck, or the highest returns. Rooms are guaranteed to be sold if priced at the market clearing price, the price that is found from setting demand equal to market quantity. Pricing lower would mean losing money, since you would miss out on full profit potential. However, pricing lower does mean that your rooms are sold first. For low seasons, I priced one cent lower than the market clearing price because I prefer to be conservative. If you bid above the market clearing price, you risk not selling your rooms. If everyone prices at the market clearing price or below, you would not sell your rooms. If others price above the market clearing price, you may be successful. In my first turn, I did not have a clear strategy. I predicted that others would price above the costs for each hotel room, which was $74.99. I was also mistaken; I had thought the first round was for the low season. If I had known that it was a low season, I would...
Words: 433 - Pages: 2
...Lecture 3 – Solutions Suggested Problems P & R Chapter 15 Review Questions: 1, 2, 3, 7, 11, and 12 #1 In general, the building would be regarded as a stock of capital while cloth, labor, output and profits would all be measured as flows. #2 Assuming payment at the start of the year, we have value = $1,000 + $1,000/(1.05) + $1,000/(1.05)^2 .... = $1,000 * 1.05/.05 = $21,000. With payment at the end of the year, the value would be $20,000. #3 The effective yield is the discount rate that makes the present value of the coupon payments equal to the price of market price of the bond. A short-term measure of the effective yield is the coupon rate plus the expected appreciation on the bond. #7 A nominal rate is used to discount nominal values; a real rate is used to discount real values. If the values are real, use the appropriate real rate. If the values are nominal, use the appropriate nominal rate. #11 The NPV approach (with the appropriate discount rate) is the method that makes the answers the clearest. #12 The user cost represents the opportunity cost of not being able to extract the resource in the future. The user cost must rise at the rate of interest for the firm to be maximizing profits. In a competitive market, a firm will set price equal to marginal extraction cost plus the user cost. P & R Chapter 15 Exercises: 3, 4, 6, and 7 #3 We just calculate $80 + $80/(1+r) + $80/(1+r)2 + ... $80/(1+r)5 + $1,000/(1+r)6 #4 Effective yield solves...
Words: 1695 - Pages: 7
...Chapter 6 Demand and Marginal Benefit Demand, Willingness to Pay, and Value • The value of one more unit of a good or service is its marginal benefit. Marginal benefit is the maximum price that people are willing to pay for another unit of a good or service. And the willingness to pay for a good or service determines the demand for it. So the demand curve for a good or service is also its marginal benefit curve. • The market demand curve is the horizontal sum of the individual demand curves and is formed by adding the quantities demanded by all the individuals at each price. • The demand curve in the figure shows that the maximum price a person is willing to pay for the 6 millionth gallon of milk per month is $3, so $3 is the marginal benefit of this gallon. • MSB curve: The market demand curve is also the economy’s marginal social benefit (MSB) curve. It reflects the number of dollars’ worth of other goods and services willingly given up to obtain one more unit of a good. • The figure shows that the maximum price a consumer is willing and able to pay for the 6 millionth gallon of milk is $3, so the marginal social benefit of the 6 millionth gallon of milk is $3. • Consumer surplus is the value (or marginal benefit) of the good minus the price paid for it, summed over the quantity bought. The figure illustrates the consumer surplus as the shaded triangle when the price is $3 per gallon. Supply and Marginal Cost Supply, Cost, and...
Words: 2450 - Pages: 10
...Microeconomics Article I Expanding Waistlines These days it is so much easier to get that snack because food snacks are available everywhere and the chemicals and other harmful additives adds to the caloric intake of each individual snack. Economics predicts that due to the easy availability of snacks the actual amount of meals will continue to increase and increase the total caloric intake. Married women have been able to return to the workplace due to the increasing technology in making things easier. Although technology has enable meals to be more easily prepared, they have increased the opportunity cost of women’s time thus increasing their caloric intake due to the busy lifestyle, and easy availability of the snacks. Not quite sure where this question is going, but I can infer that because the price of auto mobiles dropped it allowed more Americans to buy them. More vehicles on the road and the increased amount of unskilled drivers all contributed to the amount of fatalities on the road. Every situation in our lives has a reaction to an action, but initially I think you could possibly say that Americans were worse off because of the amounts of deaths on the roads, but as time went on and Americans became better drivers, and our road systems improved that the amount o deaths dropped. Weather it is true or not economically the accidents on the road was contributing to the economy. Think about it if there is an accident so many different industries are involved...
Words: 304 - Pages: 2
...Microeconomics 200 Chapter 3.3 Consumer Choice Given preferences and budget constraints, we can now determine how individual consumers choose how much of each good to buy. Consumers choose goods to maximize the satisfaction they can achieve, given the limited budget available to them. The maximizing market basket must satisfy two conditions: 1. It must be located on the budget line. 2. It must give the consumer the most preferred combination of goods and services. For example, Three indifference curves describe a consumer’s preferences for food and clothing. The outer-most curve, U3, yields the greatest amount of satisfaction, curve U2, the next greatest amount, and curve U1, the least. Point B on curve U1, is not the most preferred choice, because a reallocation of income in which more is spent on food and less on clothing can increase the consumer’s satisfaction. Point A – the consumer spends the same amount of money and achieves the increased level of satisfaction associated with indifference curve U2. The baskets located to the right and above indifference curve U2, like the basket associated with Point D on the indifference curve U3, achieved a higher level of satisfaction but cannot be purchased with available income. Therefore, Point A maximizes the consumer’s satisfaction. Satisfaction is maximized when: * The marginal rate of satisfaction (of F for C) is equal to the price ratio. * The marginal benefit (benefit...
Words: 2007 - Pages: 9
...Economics is the study of the key players in the economy, such as: * Government * Shareholders * Consumers/ Suppliers * Regulators etc.; These players interact with each other to maximize their own agendas. However, they each have limited resources. This means that choices must be made, where something is selected and another is given up. Opportunity cost is defines as the benefits foregone of the next best alternative when a choice has to be made. When resources are scarce/ limited, each player must make a choice but in making this choice something must be given up which is the opportunity cost of making a decision. PPC – Production Possibility Curve A PPC curve shows the maximum possible combinations of any 2 goods/services given the limited resources available to produce them. Economics as a subject is divided into 2: 1. Positive economics a. Numbers b. Data c. Facts d. Science 2. Normative Economics e. Values f. Judgment g. Opinion h. Debates Textbooks focus on positive economics only. Normative economics comes from our discussions in class and forums. Microeconomics focuses on the individual markets, players and industries within a country/economy. Macroeconomics focuses on the whole economy/country and also its relations to other countries/economies. CELL * Capital * Entrepreneurship * Land * Labor BEP Questions * What to...
Words: 4630 - Pages: 19
...DEREE COLLEGE DEPARTMENT OF ECONOMICS EC 1101 PRINCIPLES OF ECONOMICS II FALL SEMESTER 2002 M-W-F 13:00-13:50 Dr. Andreas Kontoleon Office hours: Contact: a.kontoleon@ucl.ac.uk Wednesdays 15:00-17:00 Homework for Chapter 7 (Answer Sheet) 1. Below is a list of domestic output and national income figures for a given year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditure and income methods. The results you obtain with the different methods should be the same. | | | |Personal consumption expenditures |$245 | |Net foreign factor income earned |4 | |Transfer payments |12 | |Rents |14 | |Consumption of fixed capital (depreciation) |27 | |Social security contributions ...
Words: 1641 - Pages: 7
...ZAMAN, M GM 545 Exercise 1 In the current economy, people have developed distrust towards the business sector. One of these issues is the over reporting under reporting of net income. The company management looks for every quarter the net income of the business has developed. In order to view this they adopt unethical means in the operation and financial reporting, One such method is the indiscriminate use of stock options for employees that enable companies to take employment costs off balance. There will be a decline in the price of the product of the firm in monopolistic competition. In case the firm is operating in perfect competition, there will only be an increase in the quantity the company sells in the market. Any market structure, perfect, monopoly, oligopoly or monopolistic competition, the same ethical issues arise, the salary cost is not reported due to the stock options. From the ethical perspective it is the duty of the management to show the correct profits and not inflated profits. References: 1. Hester,W. (2004, January).The market's reality show. Retrieved from http://www.hussmanfunds.com/rsi/earnreality.htm. 2. Jacobson, R. (2007, July). The cost of myopic management. Retrieved from http://hbr.org/2007/07/the-cost-of-myopic-management/ar/ 3. Holian , M. (n.d.). Firm and industry effects in. Retrieved from http://www.sjsu.edu/faculty/matthew.holian/fixed_effects.pdf 4. Market structure. (n.d.). Retrieved from http://www.businessdictionary...
Words: 453 - Pages: 2
...MicroEcon-2010 Economics Research Assignment: Short and Naked Short Selling & Their Impact on the Economy The term “Short Sell” refers to a broker who borrows shares of a publicly traded company from a third party, and hopes to sell back to the original owner at a lower price. An example could a broker who borrows and immediately sells 100 shares of “Ryan Stewart Real Estate Company” for $10 a share, equaling $1,000. The price per share falls to $7, so the broker buys the original 100 shares back at a lower price of $700, and returns the original amount of shares to the third party. Therefore the broker profited $300 while the stocks were losing value. The term “Naked Short Sell” refers to the selling of shares, before you borrow them. If there are many sellers of a particular share, then the price of the stock decreases. Brokers use naked shorting to drive the price of a stock down. An example is someone trying to sell someone’s house without their permission. The broker doesn't have the title to the home before they have a buyer. Therefore the difference in short selling and naked short selling is that one has the right to borrow a third parties stock and the other doesn't. When any decently educated person wants to invest money into stocks they should look at the current earnings of a company and their estimated future earnings. But what if a large amount of brokers are collaborating to drive the stock price...
Words: 973 - Pages: 4
...Cuprins 1 Introducere ......................................................................................................................... 3 1.1 Sistem informaţional şi Sistem Informatic (SI).......................................................... 3 1.1.1 Particularităţi ale introducerii unui Sistem Informatic ....................................... 3 1.1.2 Schema bloc a Sistemului Informatic................................................................. 5 1.2 Tipuri de Sisteme Informatice .................................................................................... 6 1.2.1 Sisteme de prelucrare a tranzacţiilor .................................................................. 6 1.2.2 Sisteme de conducere ......................................................................................... 6 1.2.3 Sisteme de asistare a deciziilor........................................................................... 7 1.2.4 Sisteme bazate pe cunoştinţe .............................................................................. 7 1.2.5 De la MPR la ERP şi BPR ................................................................................. 7 1.3 Funcţiile unui Sistem Informatic ................................................................................ 8 2 Abordări în Sisteme Informatice cu Baze de Date ............................................................. 9 2.1 Cadrul general şi specific al sistemelor cu Baze de Date ................................
Words: 25152 - Pages: 101
