Question Homework Set #2 – ECN 212 – Fall 2015 – Dr. Roberts

08 Jun Question Homework Set #2 – ECN 212 – Fall 2015 – Dr. Roberts

Question
Homework Set #2 – ECN 212 – Fall 2015 – Dr. Roberts

(Hard copy for your convenience)

Homework Set #2 must be submitted online no later than

Monday, September 14, 2015 at 11:59 p.m.

1. If Ed = -1.5 and price decreases by 20 percent, then

[A] quantity demanded will increase by 30 percent.

[B] total revenue will decrease.

[C] quantity demanded will increase by 3 percent.

[D] total revenue will remain unchanged.

[E] demand will increase by 30 percent.

2. When the price increases from $4 to $6 and the quantity demanded decreases by 2 units, the price elasticity of demand is

[A] -25.

[B] -1.5.

[C] -5.

[D] -2.5.

[E] Cannot be determined from the information given.

Use the Table below to answer the next question.

INCOME

QUANTITY PURCHASED

Automobiles

Coffee

Tea

$30,000

2

10

5

$45,000

3

8

15

3. What is the income elasticity of demand for coffee?

a) -2.5

b) 2.5

c) 1.5

d) -0.66

e) -0.56

4. The movie theater recognizes that demand for tickets to its matinee movies is relatively inelastic. To increase its revenues it should

a. reduce the price of popcorn and raise the price of soda-pop.

b. lower the ticket price.

c. increase the price of popcorn.

d. it can’t increase sales and should simply stop showing the matinees.

e. raise the ticket price.

5. Suppose the original demand for good R is 20 units and the new demand for R is 10 units. For good T, the original price is $8 and the new price is $6. What is the cross-price elasticity of demand between R and T and how are R and T related?

a. 0.43, compliments

b. 5, compliments

c. -2.33, substitutes

d. 2.33, substitutes

e. -0.43, compliments

6. Cole is about to purchase 4 units of good A and 6 units of good B. The price of both A and B is $2. Cole has only $20 to spend. Assume that the marginal utility of the fourth unit of A is 12 and the marginal utility of the sixth unit of B is 8. If Cole wants to maximize utility

[A] he should buy more of A and less of B.

[B] from the information given, it is impossible to determine whether or not Cole is maximizing utility.

[C] he should buy less of A and more of B.

[D] he should not buy anything.

[E] he should buy A and B in the quantities indicated.

Jackson has $10, which he plans to allocate among three rides at the amusement park. Each ride on the Roller Coaster costs $2.00, on the Bumper Cars, $1.00, and on Splatter Mountain, $3.00. The Table below shows Jackson’s utility schedule for the three rides.

# OF RIDES

ROLLER COASTER

MARGINAL UTILITY
BUMPER CARS
MARGINAL UTILITY

SPLATTER MOUNTAIN

MARGINAL UTILITY

1

200

200

150

2

100

150

90

3

60

50

60

4

10

30

30

5

0

20

9

6

-72

10

0

7. Given Jackson’s budget constraint, what combination of rides will maximize Jackson’s utility?

a) 3 Roller Coasters, 1 Bumper Car, and 1 Splatter Mountain.

b) 3 Splatter Mountains and 1 Bumper Car.

c) 2 Roller Coaster rides, 3 Bumper Car rides and 1 Splatter Mountain ride.

d) 2 Roller Coaster rides and 6 Bumper Car rides.

e) 3 Roller Coaster rides, 4 Bumper Car rides and 2 Splatter Mountain rides.

Jackson has $10, which he plans to allocate among three rides at the amusement park. Each ride on the Roller Coaster costs $2.00, on the Bumper Cars, $1.00, and on Splatter Mountain, $3.00. The Table below shows Jackson’s utility schedule for the three rides.