Economics Homework Four - Model - Revision history

AddisonDM at 01:11, March 9, 2011

2011-03-09T01:11:16Z

AddisonDM at 03:31, March 5, 2011

2011-03-05T03:31:20Z

Aschlafly: Protected "Economics Homework Four - Model": model answers are complete ([edit=sysop] (indefinite) [move=sysop] (indefinite))

2009-10-11T21:20:53Z

Protected "Economics Homework Four - Model": model answers are complete ([edit=sysop] (indefinite) [move=sysop] (indefinite))

Aschlafly: switch a model answer; done now

2009-10-11T21:15:02Z

switch a model answer; done now

Aschlafly: done

2009-10-11T21:11:52Z

done

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2009-10-11T20:57:06Z

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2009-10-11T20:40:22Z

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2009-10-11T20:24:43Z

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2009-10-11T20:05:00Z

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2009-10-11T19:39:03Z

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−	1. A consumer's overall satisfaction is expressed in economics as his _________________.	+	1. A consumer's overall satisfaction is expressed in [[economics]] as his _________________.

	:total utility (Lucy)		:total utility (Lucy)

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	:They are perfect complements. The indifference curve shows that even if you have 5 extra of "good Y" you still remain indifferent because the good is not useful without the same amount of "good X." (Kathleen)		:They are perfect complements. The indifference curve shows that even if you have 5 extra of "good Y" you still remain indifferent because the good is not useful without the same amount of "good X." (Kathleen)
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		+	[[Category:Economics lectures]]

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 .  Suppose you plan to buy a brand new car for $25,000.  When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it.  The dealer says it was returned by someone after driving it only 100 miles.  You like the color and ask if you can buy it.  The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold.  You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it.  But you notice that other people (the “market”) would not pay full price for a returned car.  Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?
-:In order to get the higher consumer surplus, you should tell the dealer to sell it to you at the price you would have payed for it on the free market,instead of telling him you would buy it for the brand new price. This way the total benefit cost (free market) - total cost (full price) = consumer benefit ( how much money you were saving because you were buying the car for less then you planned).  (Deborah)
+:In order to get the higher consumer surplus, you should tell the dealer to sell it to you at the price you would have payed for it on the free market, instead of telling him you would buy it for the brand new price. This way the total benefit cost (free market) - total cost (full price) = consumer benefit (how much money you were saving because you were buying the car for less then you planned).  (Deborah)
 . Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right.  Extra credit:  why must its slope be negative 1?
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 .  "A penny saved is a penny earned!"  In fact, once taxation is taken into account, "a penny saved is almost two pennies earned!"  Discuss one or both of these quotations.
 . Do you think a Giffen good really exists?  Can you see any possible political bias in the claim that Giffen goods exist?  Your views, please.

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	1. A consumer's overall satisfaction is expressed in economics as his _________________.		1. A consumer's overall satisfaction is expressed in economics as his _________________.
		+
		+	:total utility (Lucy)

	2. Suppose you see a sleek-looking used sports car and you immediately want to buy it. You think to yourself, "I can paint that car and fix it up so it looks brand new!" You like it so much that you would very work hard for a year and save up $10,000 to buy it. You ask the owner how much he'd sell the car for, and he says $9,000. If you buy it for $9,000, then what is your "consumer surplus"? What does that concept mean?		2. Suppose you see a sleek-looking used sports car and you immediately want to buy it. You think to yourself, "I can paint that car and fix it up so it looks brand new!" You like it so much that you would very work hard for a year and save up $10,000 to buy it. You ask the owner how much he'd sell the car for, and he says $9,000. If you buy it for $9,000, then what is your "consumer surplus"? What does that concept mean?

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 . Discuss the Irish Potato Famine between 1846 and 1849, and whether you think potatoes were an "inferior good" then.
 == Extra Credit for Anyone ==
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 .  Explain whether goods X or Y are perfect substitutes or complements or something else for the indifference curves below, and why:
 [[File:IndifferenceCurve2.gif|550px]]

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	5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right. Extra credit: why must its slope be negative 1?		5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right. Extra credit: why must its slope be negative 1?
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		+	:... [T]here is perfect proportion between the two goods - if you lose three chocolate bars, you will receive three peanut butter bars, thus graphing a perfect diagonal line from the upper left tot he lower right of the graph. (Mary)
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		+	: ... The slope of the line must be negative one because that way if you take away one of good one, and add one of good two or the other way around, your level of happiness stays the same. (Nat)

	:... The reason that the slope is negative ''one'' is that, for two or more goods or services which are perfect substitutes, when you lose one good or service, you need to obtain one of the other goods or services in order to maintain the same total utility. (Dermot)		:... The reason that the slope is negative ''one'' is that, for two or more goods or services which are perfect substitutes, when you lose one good or service, you need to obtain one of the other goods or services in order to maintain the same total utility. (Dermot)

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 :... The consumer surplus is the total benefit which a buyer gets when buying a good. For example, if someone wanted a new laptop so badly that he was willing to pay $1800 for it, and he bought it for $1500, then his consumer surplus is $300.  Consumer surplus = total benefit - total cost  (Mark)
 .  Suppose your favorite hobbies are reading books and hiking, and imagine that they have the following values for marginal utility.  The first hour that you hike gives you lots of utility:  10 units.  But as you start to tire, you enjoy and benefit from it less.  The next hour of hiking is worth only 8 units of utility (in other words, it has a marginal utility of 8 units rather than 10), and the next hour of hiking is worth only 5 units, and then 3, then 1, and then zero for the next hours, in that order.  Your marginal utility for reading books does not decline so quickly.  In the first hour, reading a book gives you utility of 6 units; the next hour is worth 5 units; the next hour is worth 4 units; and then 3, 2, 1 and 0.  Suppose that you have 5 extra hours today.  How should you spend those hours on hiking and reading in order to maximize your utility, and what will be your total utility for those 5 hours?  Explain your answer.
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 . Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right.  Extra credit:  why must its slope be negative 1?
 .  Describe either the "income effect" or the "substitution effect."  Take your pick.
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 :Free market is the most important aspect in the economic world. In the free market, people are attracted to the good or service because there will be a reciprocation. Charity is the giving away of a good or service without gaining a reward. Free market gives an incentive for people to work for gain and then give charity to those who are in need.  (Allie)
 ===Honors===

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	:The “substitution effect” starts off when the price a good increases. Since people do not want to pay the higher price, the substitute of the item starts to sell more due to its lower price. As a result the demand for the good with the higher price decrease as the demand for the lower priced substitute increases. (Leonard)		:The “substitution effect” starts off when the price a good increases. Since people do not want to pay the higher price, the substitute of the item starts to sell more due to its lower price. As a result the demand for the good with the higher price decrease as the demand for the lower priced substitute increases. (Leonard)
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		+	:When the price of a good increases, or the price of it's substitute decreases, the demand for the initial good lessens. If the companies who make butter all decided to double the price of their product, less people would buy butter. Likewise, if the people who made margarine decided to cut their price in half, more people would buy that instead of butter. This is called the substitution effect, and it is part of the reason why the Law of Demand is true. (Michelle)

	7. Charity is based on the foundation of a successful free market. Or is a successful free market based on a foundation of charity? Describe and explain which is the cart, and which is the horse (in other words, which comes first or is most important, charity or the free market).		7. Charity is based on the foundation of a successful free market. Or is a successful free market based on a foundation of charity? Describe and explain which is the cart, and which is the horse (in other words, which comes first or is most important, charity or the free market).

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	:I would spend 3 hours hiking and 2 hours reading. That would be 10+8+5+6+5=34 hour’s total utility. the decrease in marginal utility between the two activities cross each other at 5 units, so that is about as low as you want to go for hiking, since the next decline is a lot less than the upper levels of utility for reading, so we'll substitute reading for hiking at that point. If you cross the two decline slopes you want to choose the points above the cross to maximize utility. (Aran)		:I would spend 3 hours hiking and 2 hours reading. That would be 10+8+5+6+5=34 hour’s total utility. the decrease in marginal utility between the two activities cross each other at 5 units, so that is about as low as you want to go for hiking, since the next decline is a lot less than the upper levels of utility for reading, so we'll substitute reading for hiking at that point. If you cross the two decline slopes you want to choose the points above the cross to maximize utility. (Aran)
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		+	:I would spend 3 hours hiking and 2 hours reading which would give me a total of 34 utility if i spent my whole 5 hours hiking I would have only 27 utility and if I spent the whole time reading I would only have 21 utility. By balancing my two favorite hobbies I would maximize my utility. (Isaac)

	4. Suppose you plan to buy a brand new car for $25,000. When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it. The dealer says it was returned by someone after driving it only 100 miles. You like the color and ask if you can buy it. The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold. You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it. But you notice that other people (the “market”) would not pay full price for a returned car. Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?		4. Suppose you plan to buy a brand new car for $25,000. When you do to the car dealership to make your purchase, you notice that there is a car on the lot that looks brand new but not longer has the sticker price on it. The dealer says it was returned by someone after driving it only 100 miles. You like the color and ask if you can buy it. The dealer, seeing that you’re so interested, says he’ll sell it to you for the same price as a brand new car that has never been sold. You’re willing to buy it at full price, and do not mind one bit that someone else used it briefly and returned it. But you notice that other people (the “market”) would not pay full price for a returned car. Relying on the “market” rather than your personal preferences, what should you tell the dealer in order to maximize your benefits from your purchase?