Microeconomics Answers

You are a racehorse trainer with a horse entered to run in the Japan Cup. Your horse has 60% chance of coming in 1st in the race with a prize of $100,000. You have a 40% chance of losing which means you get nothing in prize money. Your expected value of running your horse in the race is:

A. $100,000.

B. $40,000.

C. $60,000.

D. $4,000

In the following scenario Igor is given the following information:

​A 40% chance of winning $1,500 and a 60% chance of losing $1,000.

This would be known as a(n):

A. fair gamble.

B. unfair gamble.

C. almost-fair gamble.

D. better-than-fair gamble.

Your place of employment offers the choice of working from home or working at the office. At times it can be difficult to find a parking place near the office. When this is the case, employees will make the decision to turn around and go home. Every Wednesday your employer offers a catered lunch from an exclusive restaurant to all employees working that day in their office. This means that on Wednesday’s you can expect the optimal amount of time employees are looking for a place to park will ______. This is because ________. 

A. decrease; the marginal cost of search is higher

B. increase; the marginal cost of search is lower

C. increase; the marginal benefit of search is higher

D. decrease; the marginal benefit of search is lower

Chris has an autographed copy of a Nat King Cole album that he values at $100. If he sells the album at a garage sale it will be sold to a buyer with a reservation price of $175. If he sells it on eBay it will be sold to a buyer with a reservation price of $500. eBay will charge Chris $50 to auction the album. Compared to selling the album at a garage sale, auctioning the album on eBay will lead to:

A. no change in total economic surplus.

B. total economic surplus to increase by $500.

C. total economic surplus to increase by $275.

D. total economic surplus to increase by $100.

Using the information below, calculate the student’s economic surplus:

A student is offered a job making copies in the college library. The job is two days a week from 2pm-3pm. The student’s reservation wage is $10 per hour. The head librarian offers the student $80 per week for the job.

A. $10 per week

B. $20 per week

C. $60 per week

D. $80 per week

Christopher purchased auto insurance for a new car. His insurance provides bumper-to-bumper coverage. Because of his type of insurance, Christopher will most likely _____. This behavior is because _____.

A. drive more cautiously than if he didn't have insurance; moral hazard

B. drive more cautiously than if he didn't have insurance; adverse selection

C. drive less cautiously than if he didn't have insurance; adverse selection

D. drive less cautiously than if he didn't have insurance; moral hazard

Suppose the market demand function is given by D(PD) = 60—PD and the supply is S(P) = 2PS.

a) Find the market equilibrium without taxes where PD = PS

b) Suppose now the supplier is required to a per unit tax of t = 3. Draw a graph to to show the change in the supply curve. Find the equilibrium quantity and prices, q*,PS*,and PD*. How much of the per unit tax is passed on to the consumer?

c) Suppose now that the demander is required to a per unit tax of t = 3. Draw a graph to show the change in the demand curve Find the equilibrium quantity and prices, q*, PS*, and PD* .Compare your answers in parts b) and c).

d) Calculate the change in consumer’s surplus, change in producer’s surplus, and dead weight loss as a result of the policy change. Illustrate them on a graph.

1. TRUE or FALSE . All credits will be assigned to explanations.

a) For a normal good, the marginal revenue curve always lies below the demand curve.

b) In a two good model, if one good is an inferior good, then the other good must be a luxury good.

c) Montreal will have (hopefully) a very mild winter. Suppose the supply of down coats does not change. In the market equilibrium this winter, the quantity of down coats sold will go down because demand decreases.

d) Two firms employ the same factors of production to produce the same product. We also know that both of their technologies exhibit constant returns to scale. Then. if the factors firm 1 uses are exactly twice the amount of those firm 2 uses. then firm 1 must produce twice the output that firm 2 produces.

Calculate the income elasticities for the following demand functions.

a) x(p,m) = m/2p*

b) x(p,m) = 10/p*

Why might it have been useful for Nintendo co. to calculate the price elasticity of demand for its Super NES system