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| | 6. Suppose you decide you could profitably set the price for a homeschool dinner event at $15 per ticket, and it would have attracted 150 people. You also determine that 50 out of the 150 people who would have attended would have paid $20 per ticket and 10 out of the 150 would have paid $25 per ticket, and 5 out of the 150 would have paid $30 per ticket, because they would have enjoyed and benefited so much from it. However, this homeschool dinner event was never held because no one "got around to it." What is the loss in wealth or consumer surplus due to the fact that the event was ''not'' held? | | 6. Suppose you decide you could profitably set the price for a homeschool dinner event at $15 per ticket, and it would have attracted 150 people. You also determine that 50 out of the 150 people who would have attended would have paid $20 per ticket and 10 out of the 150 would have paid $25 per ticket, and 5 out of the 150 would have paid $30 per ticket, because they would have enjoyed and benefited so much from it. However, this homeschool dinner event was never held because no one "got around to it." What is the loss in wealth or consumer surplus due to the fact that the event was ''not'' held? |
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| | + | :The loss in consumer surplus is the sum of the extra amount that everyone benefited above the $15 they paid for the tickets. The amount of this consumer surplus varies from individual to individual, and then it is all summed up. It is the extra amount that people would have paid, but did not have to because the ticket price was lower than what they would have paid. |
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| | + | :So the consumer surplus for this question is: |
| | + | :5 TIMES ($30 - $15) |
| | + | :10 TIMES ($25 - $15) |
| | + | :50 TIMES ($20 - $15) |
| | + | :The total sum is $75 + $100 + $250 = $425 |
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| | + | :Thus the consumer surplus is $425. |
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| | 7. Explain what the "CPI" is, and why the real price of a good is decreasing if its price remains constant while the CPI increases from year-to-year. An example of this might be the real price of laptop computers from 2012 to 2013. | | 7. Explain what the "CPI" is, and why the real price of a good is decreasing if its price remains constant while the CPI increases from year-to-year. An example of this might be the real price of laptop computers from 2012 to 2013. |
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| | + | The CPI is the Consumer Price Index, which helps measure inflation from month-to-month, based on how prices change for a set of non-farming goods. A CPI of "100" was the average for the period 1982-84. In January 2004, the CPI was 185.2, and in July 2009, the CPI was 215.351. This means that a dollar in 2009 was worth less than 1/2 the value of a dollar in 1982-1984, because a typical good (like a candy bar) cost nore than twice as much as a typical good in 1982-1984. |
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| | + | :Laptop computers cost about the same in 2013 as 2012, but the CPI increased over that same time. This means the value of a dollar decreased from 2012 to 2013. If the same number of dollars can buy the same laptop in 2013 as 2012, than the real price of that laptop computer decreased |
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| | ==Honors== | | ==Honors== |
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| | 8. Explain what the Producer Surplus is, and provide an example. | | 8. Explain what the Producer Surplus is, and provide an example. |
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| | + | :Producer surplus is the wealth obtained by a seller (firm) because he was able to sell his good at a price higher than what he was willing to accept. |
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| | + | :Example: if a car dealer is willing to sell a new car for $25,000, but a customer walks into his store and pays him $30,000 for it, then the car dealer has a prodcer surplus of $5,000. |
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| | 9. Suppose the underlying ''labor'' market is perfectly competitive, but there is a minimum wage above the market rate. Then suppose that the supply of labor increases. Explain what the result is and why. | | 9. Suppose the underlying ''labor'' market is perfectly competitive, but there is a minimum wage above the market rate. Then suppose that the supply of labor increases. Explain what the result is and why. |