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Economics Homework Five - Model (view source)
Revision as of 14:31, October 14, 2009
, 14:31, October 14, 2009setting up model answers
1. Define, in your own words, economic “efficiency”. Use it in an example sentence.
2. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y?
3. Suppose it costs you $500 to make your first 5 units, then $200 to make your next 5 units, and then $100 to make your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit?
4. Suppose your annual income increases from $20,000 to $25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers?
5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem?
6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.
7. What does the Coase theorem say about the desirability, and the effect, of government regulations that increase transaction costs?
[edit] Honors
No essay this week. Instead, complete all of the following problems:
8. The greater the number of substitutes for a good, is it more or less price elastic? Explain briefly.
9. The smaller the proportion of income consumed by the purchase of a good, is it more or less income elastic? Explain briefly.
10. Would government prefer taxing a good that is price elastic or price inelastic? Explain briefly.
11. Calculate the income elasticities for the two goods in question 4.
12. Suppose french fries cost $1 and ketchup 10 cents. When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%. What is the cross elasticity of demand for french fries with respect to ketchup? Show your work and state whether these goods are complements or substitutes.
13. (Optional) Can you think of any consequence of the Coase theorem that is not mentioned in this Lecture?
2. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y?
3. Suppose it costs you $500 to make your first 5 units, then $200 to make your next 5 units, and then $100 to make your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit?
4. Suppose your annual income increases from $20,000 to $25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers?
5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem?
6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.
7. What does the Coase theorem say about the desirability, and the effect, of government regulations that increase transaction costs?
[edit] Honors
No essay this week. Instead, complete all of the following problems:
8. The greater the number of substitutes for a good, is it more or less price elastic? Explain briefly.
9. The smaller the proportion of income consumed by the purchase of a good, is it more or less income elastic? Explain briefly.
10. Would government prefer taxing a good that is price elastic or price inelastic? Explain briefly.
11. Calculate the income elasticities for the two goods in question 4.
12. Suppose french fries cost $1 and ketchup 10 cents. When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%. What is the cross elasticity of demand for french fries with respect to ketchup? Show your work and state whether these goods are complements or substitutes.
13. (Optional) Can you think of any consequence of the Coase theorem that is not mentioned in this Lecture?