Exam 5: Consumers and Incentives

Scenario: When the price of wine is $10 per bottle, Thomas purchases 30 bottles of wine per month. Suppose the government levies a 50 percent tax on all alcoholic beverages . The burden of this tax is to be completely borne by the consumers. This reduces Thomas's consumption to 20 bottles of wine per month. -Refer to the scenario above.After the implementation of the tax,Thomas's expenditure on wine will ________.

Consumer surplus is ________.

a)Define the term "consumer surplus." If your willingness to pay for a good is $500 and you get it at a discounted price of $275,what is your consumer surplus? b) In the following figure, calculate the consumer surplus when the market price is $20.

Assume that a consumer can spend $20 on two goods-pens and pencils.If the price of one pen is $5 and the price of one pencil is $2,which of the following combinations of the two goods represents a point on the consumer's budget constraint?

If the quantity of milk is measured on the horizontal axis and the quantity of juice is measured on the vertical axis,a decrease in the price of milk will cause a budget constraint to ________.

Which of the following statements is true of the cross-price elasticity of demand?

The following figure illustrates the market demand curve for solar-powered lights. -Refer to the figure above.What is the absolute value of the arc elasticity of demand for solar-powered lights when their price increases from $6 to $8?

Greenaqua Corp.is the only supplier of bottled drinking water in Lithasia.Its positive economic profits in the short run attract new companies to the market.If new companies producing their own line of bottled drinking water enter the market,which of the following statements is likely to be true?

The substitution effect of a price change is represented by ________.

The following figure shows the indifference curves (IC) and the budget constraint (BC) of a consumer who needs to decide between the number of trousers and shirts he should purchase. -Refer to the figure above.Which indifference curve depicts the highest level of utility?

What are the factors that determine a buyer's purchasing decision?

John is ready to pay $5 for an extra loaf of bread.Because of an ongoing discount in the grocery store,he gets a loaf for $2.After the discount,John's consumer surplus from the purchase is ________.

Scenario: Joey is a college student living in Boston. He has preferences over only two goods, small pies at Pizzeria Regina (denoted by PR) and Red Sox games (denoted by RS). Joey has $150 per month in disposable income to spend on baseball games and pizza, the price of a small pie at Pizzeria Regina is $10 (pPR = $10) and the price of a Red Sox ticket is $20 (pRS = $20). -Joey's budget constraint is given by $ ________ PR + $ ________ RS = $________.

As the number of substitutes available for a good increases,the price elasticity of demand for the good ________.

Price elasticity of demand measures ________.

At the midpoint of a downward-sloping,linear demand curve for a good,the price elasticity of demand for the good is ________.

Which of the following statements is true?

Which of the following goods is likely to have the lowest price elasticity of demand?

Which of the following formulas is used to calculate the "point" elasticity of demand?

Define a budget set.Is it the same as a budget constraint?