Exam 5: Consumers and Incentives

Which of the following correctly describes incentives?

The following figure shows some indifference curves and the budget constraint of a consumer.Determine the commodity bundle that will maximize the consumer's satisfaction given her budget.Which combination of Good 1 and Good 2 optimizes the consumer's budget?

Scenario: Maylin is shopping at the sporting goods store for socks and running shoes. She has determined the following total benefit derived from each quantity of socks and running shoe -If Maylin has $150 of income to spend on socks and running shorts,socks cost $10 per pair and running shorts are $10 each,what consumption bundle maximizes Maylin's total benefit?

The following table shows the total benefit that Jenny derives from consuming different quantities of chocolate. -Refer to the table above.If Jenny consumes a sixth unit of chocolate and the marginal benefit derived from that unit is -1,the total benefit derived from the sixth unit will be equal to ________.

The following table shows the marginal benefit that Marcus derives by consuming different quantities of hotdog and soda. The price of a hotdog is $3, and the price of a soda is $1. -Refer to the table above.The price of a soda increases from $1 to $2.What is the optimal combination of Soda and Hotdog for Marcus,if his weekly budget for hotdog and soda is $10?

A good is said to have a relatively elastic demand if the value of the price elasticity of demand for the good is ________.

The following figure illustrates the market demand curve for wine. -Refer to the figure above.What is the market-wide consumer surplus when the market price of wine is $9 per bottle?

Assume that a consumer has an income of $200 that has to be spent on two goods,decorative lights and shoes.If the price per light is $10 and the price of one pair of shoes is also $10,graphically illustrate her budget set and constraint.Also,calculate the opportunity cost of purchasing either good.

The following figure shows the budget constraint of Lesley when she is faced with two goods: burgers and icecream. -Refer to the figure above.If the line represents Lesley's budget constraint,and Lesley has $60 budget to be spent on burgers and ice cream,what is the price of burger and ice cream?

The negative value of the price elasticity of demand for a good can be attributed to ________.

Which of the following statements is true of incentives?

a)Classify and draw the demand curves for two goods with the following price elasticities of demand: i)Price elasticity of demand = ∞ ii)Price elasticity of demand = 0 b)Consider two goods: A and B.Good A has many close substitutes,while Good B has only a few.An individual spends an equal amount of his budget on both goods.Given this information,which of the two goods will have a higher price elasticity of demand? c)Consider two goods: A and B.Both goods have the same number of substitutes,but consumers spend a higher proportion of their income on Good A than on Good B.Given this information,which of the two goods will have a higher price elasticity of demand?

Using Sam's demand schedule for Brawndo above and the market price of $4 per can,Sam's total consumer surplus from purchasing 6 cans at the market price is ________.

If a 10 percent increase in the price of a good causes a 10 percent decrease in the quantity demanded of the good,the good has an elasticity of demand equal to ________.

An optimizing consumer has to choose between two goods: Good A priced at PA and Good B priced at PB.Given that MBA is the marginal benefit from consuming Good A and MBB is the marginal benefit from consuming Good B,the consumer's well-being will be maximized at the point where ________.

Your mom has clipped two coupons from the Sunday paper.The first coupon is for a $5 off of a $10 shampoo,and the second one is for a $5 off of a $50 haircut.Your mom says the first coupon is more valuable.

A buyer has $20 to spend on rice and beans.Rice costs $2 and beans cost $3 per pound.The buyer is buying the combination of 4 pounds of rice and 4 pounds of beans.At this combination,her marginal benefit from rice is $14 and her marginal benefit from beans is $18.This buyer should ________.

a)Gary is a heavy smoker who spends $400 per week on cigarettes.The government decides to levy a 20 percent tax on all cigarettes.The burden of this tax will be completely borne by consumers.After the tax is levied,Gary's expenditure on cigarettes increases to $432 per week.If each pack of cigarettes sells for $20,calculate Gary's price elasticity of demand for cigarettes and comment on the elasticity of demand for addictive goods. b)If the demand for a good has an absolute price elasticity greater than one,what will happen to the total expenditure on the good if its price increases? c)If the demand for a good has an absolute price elasticity equal to one,what will happen to the total expenditure on the good if its price increases?

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

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