Microeconomics Answers

Ralph advertises to sell cookies for Php 200 a dozen. He

sells 75 dozen and decides that he can charge more. He raises the price

to Php 300 a dozen and sells 45 dozen. What is the elasticity of demand?

The demand function is p = 100/q and an increase in price reduces quantity demanded from q = 10 to q =5. Compute the lost consumer surplus (CS). First draw a diagram that illustrates the lost CS. Then integrate with respect to 𝑝 (the variable on the vertical axis) after finding

(1) the inverse demand function , 𝑞 =𝑓 (𝑝) and

(2) the endpoints of integration (corresponding to q = 10 to q = 5 ) on the

𝑝 axis .

What is Qs of Qs=21+2, when price is 3.25?

Kali lives on mangoes and avocados, Pm = $5, Pa = $10, and her income is $200.

Identify and illustrate on a new graph Kali’s new budget constraint if her income doubled, the price of mangoes doubled, and the price of avocados remained constant.

Household Consumption and Budget Constraints

Kali lives on mangoes and avocados, Pm = $5, Pa = $10, and her income is $200.

A. Identify her budget constraint equation and illustrate Kali’s budget line on a graph

with mangoes on the horizontal axis and avocados on the vertical axis.

B. Identify and illustrate on a new graph Kali’s new budget constraint if her income

doubled, the price of mangoes doubled, and the price of avocados remained constant.

C. Explain the impact on her real income when the price changed in the scenario in B

assuming income had remained constant.

Consider the following goods and services. Which are the most likely to be produced in a

perfectly competitive industry? Which are not? Explain why you made the choices you did,

relating your answer to the assumptions of the model of perfect competition. Please address all of

the examples below in your discussion.

1. Coca-Cola and Pepsi

2. Potatoes

3. Private physicians in your local community

4. Government bonds and corporate stocks

5. Taxicabs in Lima, Peru—a city that does not restrict entry or the prices drivers can charge

6. Oats

B) what is the mariginal rate of subsitutuion between two complementary goods ?

you were planning to spend saturday working at your part-time job but a friend asks you to go skiing

A person’s utility function is of the form U(x,y) = 5xy. The prices of good x and y are Px = $4 and Py = $2, respectively. The person’s income is $1200.

(a) Show that these preferences are homothetic?

(b) What quantities of x and y should the consumer purchase to maximize his

utility?

(c) Determine the person’s income offer curve (IOC). Draw it.

(d) Explain whether each of the two goods is normal or inferior.

(e) Derive the Engel curve for x. Draw it.

D. Complete the following table and graph the utility curves for Kali and describe the

slope of her utility curves in the context of her consumption for mangoes. (12 marks)

Eggplants Total Utility Marginal Utility

(TU) (MU)

1 105

2 195

4 300

6 30

8 375

9 4