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Economics Homework Five - Model (view source)
Revision as of 20:05, October 21, 2009
, 20:05, October 21, 2009completed
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?
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?
:... A and B are substitutes and X and Y are complements, because all complements are negative and all substitutes are positive. (Genevieve)
:If the cross elasticity of goods A & B is 3.8, and goods X & Y is -2.7 we can conclude that goods A & B are substitutes since they are a positive number while goods X & Y are complements since they are a negative number. (Shanna)
:If the cross elasticity of goods A & B is 3.8, and goods X & Y is -2.7 we can conclude that goods A & B are substitutes since they are a positive number while goods X & Y are complements since they are a negative number. (Shanna)
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?
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?
:$20 for each additional unit made. (Zachary)
:It would cost me $20 to build a new unit. (Isaac)
:It would cost me $20 to build a new unit. (Isaac)
5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem?
5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem?
:The basic assumption of the Coase theorem is an absence of transaction costs, and their absence enables the free market to attain the optimal use of a resource no matter who owns it. The assumption is essential because if transaction costs exist, then they impede the ability of people to negotiate with each other for the optimal result. (Instructor)
:The Coase Theorem is based off of two main ideas, freedom of individual choice and zero transaction costs. The Theorem implies that society would be much better off with lower transaction costs and that efficiency and prosperity can be obtained by reducing or eliminating them all together. (Amanda)
:The Coase Theorem is based off of two main ideas, freedom of individual choice and zero transaction costs. The Theorem implies that society would be much better off with lower transaction costs and that efficiency and prosperity can be obtained by reducing or eliminating them all together. (Amanda)
6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.
6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.
:He will keep selling goods, because as long as marginal revenue exceeds marginal cost, he will want to keep selling goods. (Timothy)
:When an owner’s marginal revenue exceeds the marginal cost, the owner can sell additional goods. The owner will be able to make more money from the additional goods sold. Marginal revenue is any additional revenue a business earns from selling one more unit. (Allie)
:When an owner’s marginal revenue exceeds the marginal cost, the owner can sell additional goods. The owner will be able to make more money from the additional goods sold. Marginal revenue is any additional revenue a business earns from selling one more unit. (Allie)
9. The smaller the proportion of income consumed by the purchase of a good, is it more or less income 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.
:
:It is most likely less income elastic because the buyer uses so little of his income to purchase the good that he will probably buy the same aount of the good even if his income drops. (Dermot)
10. Would government prefer taxing a good that is price elastic or price inelastic? Explain briefly.
10. Would government prefer taxing a good that is price elastic or price inelastic? Explain briefly.
:
:It depends on what the government is trying to do. If they are trying to increase revenue then they would have it be an price inelastic good. But if they are trying to curb certain behavior then they would have it be a price elastic good. (Sarah)
11. Calculate the income elasticities for the two goods in question 4.
11. Calculate the income elasticities for the two goods in question 4.
:
:.10/.25 = .4 = Y<sub>ed</sub>. Thus the income elasticity for steak is .4.
:-.5/.25 = -.2 = Y<sub>ed</sub>. Thus the income elasticity is -.2 for hamburgers. (Kate)
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.
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.