‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e Jake and Gonzalo are roommates and have saved a total of $360 to spend on summer entertainment. They have decided to use this money on tickets to baseball games and on tickets to their local amusement park, Their original budget constraint is shown in the ‘graph to the right. Let X represent amusement park tickets and ¥ represent baseball tickets. Baseball tickets (Y) What is the equation of the original budget constraint? OA 30X + 36Y= $360. OB. 30K + 127 $360. Original budget constrain 4 3 7 8 % OS. 20% + 36Y = $360. Amusement park tickets (X) OD. 20x + 12Y=$360. The price of an amusement park ticket is $_| and the price of a baseball ticket is S[_]. Enter your responses as integers.) Assume a price change occurs and Jake and Gonzalo now face the new budget constraint, What is the equation of the new budget constraint? OA 20X + 18Y=$360, 8. 30x + 10Y=$360, Oc 30% + 18¥=$360, Od. 20x + 12Y=$360, With the new budget constraint, the price of ‘an amusement park ticket is $[_| and the price of a baseball ticket is $|_|. (Enter your responses as integers.) Page |‘Student: ‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e Perfect competition is defined as: OA. few firms, each being large relative to the industry and producing virtually identical products, and in which one firm is large enough to have some control over prices. 8. many firms, each being small relative to the industry and producing virtually identical products, and in which at least one firm is large enough to have significant control over prices. OC. many firms, each being small relative to the industry and producing virtually identical products, and in which no firm is large enough to have any control over prices. OD. many firms, each being small relative to the industry and producing highly differentiated products, and in which no firm is large enough to have any control over prices. BE Homogeneous produets are: OA. differentiated outputs—products that are different from or distingui: another. OB. similar with only slight differences in color and styling, OC. undifferentiated outputs—products that are identical to or indistinguishable from one another. OD. products that have systematic mistakes 4 Which of the following assumptions about perfect knowledge is true? OA. Firms and households possess all of the information they need to make market choices. OB. Firms possess knowledge of all available information concerning wage rates, capital costs, and output prices. OC. Households possess knowledge of the qualities and prices of everything available in the market. OD. Allof the above. Page 2‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e The choice set or opportunity set available to consumers is: OA. the best set of options open to consumers. OB. aset of goods always available to consumers regardless of income level. OC. the set of options that is defined and limited by a budget constraint. OD. the set of options that is limited by only income and wealth. ‘Asstume that Mei has $100 per month to divide between dinners at a Chinese restaurant and evenings at Zanzibar, a local Meis Budget Constraint pub. Assume that going to Zanzibar costs $20 and eating at the Chinese restaurant costs $10. Suppose Mei spends two evenings at Zanzibar and eats six times at the Chinese restaurant, The graph to the right shows Mei's budget constraint and illustrates that she can afford six Chinese dinners and two evenings at Zanzibar with her current income. Assume that Mei comes into some money and can now spend $200 per month. 1.) Using the line drawing tool, draw het new budget constraint, Label this line "BC, 02°46 8 10 12 14 16 18 20 Evenings at Zanzibar per month 2.) Using the point drawing tool, show that afler the inerease in income she can afford cight evenings at Zanzibar and four meals at the Chinese restaurant, Label this point '‘C’. Note: Carefully follow the instructions above and only draw the required objects. According to Mei’s revealed preferences, Chinese dinners are normal goods) and r goods, infer evenings at Zanzibar are inferior goods], ‘normal goods Page 3‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e 1, The following table gives a hypothetical total utility schedule for the Cookie Monster 40 375. 35 326, 300- 275. 250- 225. 204 175 180. 12 10 75. a 25 Using the multipoint curve drawing tool, S LEPEEEEBEECEA Een CHa EEHa sketch the CM's total utility curve using the Number of okies information from the table above. Properly label this curve. Afer plotting the final point of your multi curve, press the Ese key on your keyhoard to Note: Carefully follow the instructions line. above and only draw the required object. Page 4Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e For this problem, assume that Joe has $80 to spend on books and movies each month and th ‘goods must be purchased whole (no fractional units). Movies cost $8 each, and books cost § Joe's preferences for movies and books are summarized by the following information. Fill i figures for marginal utility and marginal utility per dollar. (Enter your responses for MU as for MUIS rounded to two decimal places.) MOVIES BOOKS No. Per No. Per Month TU MU MUS Month TU. MU 30. 30 6.25 1 2 2 80 30 3.75 2 a 20 100 2.50 3 52 10 110 1.25 4 37 3 116 6 0.75 5 60 3 6 121 0.63 6 62 2 7 123, 2 0.28 1 63 1 Are these preferences consistent with the law of diminishing marginal utility? | Yes No Given the budget of $80, to maximize Joe's level of satisfaction, he should purchase |_| bor movies. (Enter your responses as integers:) Page 5‘Assignment: HW6 ‘ase Fair/Oster: Principles of Microeconomics 10e ‘Samantha has $7 to spend on apples and bananas and wants to maximize her utility on her purchase, ‘Apples $1.00 Bananas St Based on the data in the table, Samantha should purchase |__| apples and |_| bananas. (Enter your responses as integers.) Her total utility is [_ }. (Enter your response as an integer.) Page 6‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e The following table gives a hypothetical tota utility schedule for the Cookie Monster (CM. 1 100 Complete the table below by filling in the i missing values for marginal utility. HE ee Peer errr ee eee era Number of Total Margina Utility Utility 100 - 200 100 215 7S ce ate 325 30 350 25 * 360 10 2 ©. baad LJ ot 2 é Use the data in the table above and the graph the right to sketch the marginal utility curve, _ Affer plotting the final point of your multi curve, press the Ese key on your keyboard to Using the multipoint curve drawing tool, dra Hine, the marginal utility curve for | to 7 cookies. Label this curve ‘MU’ Note: Carefully follow the instructions above and only draw the required object. J The law of diminishing marginal utility states: OA. the more of any one good consumed in a given period, the more satisfaction (utility) generated by consuming each additional (marginal) unit of the same good. OB. the more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming cach additional (total) unit of the same good. OC. the more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good. OD. the more of any one good consumed in a given period, the less total utility is generated. Page 7Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e ‘Assignment: HW6 ‘When a consumer is maximizing utility, the ratio of marginal utility to price for all goods is equal: MUy _ MUy Py Py If the price of X fell, marginal utility per dollar for X would be greater than marginal utility per dollar for Y. The rational consumer would choose more of X. If the price of X’rose, marginal utility per dollar for X would be less than marginal utility per dollar for ¥. The rational consumer would choose to purchase less of 7 ‘The diagram to the right depicts the market for ¥. Using the line drawing tool, show the relationship between the price and quantity consumed described above. Label your line ‘Line’. Note: Carefully follow the instructions above and only draw the required object. ‘The curve you've drawn in the diagram to marginal ut the right is known as a | supply total utility demand Page 8 Market for Good X Quantity oF‘Assignment: HW6 Book: Case/Fair/Oster: Principles of Microeconomics 10e For the following event, consider how you might react. Then complete the following statements, making certain your responses are consistent with the discussion of household behavior in this chapter. Tuition at your college is cut 25 percent. You would consume more] college clas ‘You would work |less |, (Assume the substitution effect dominates the income effect of a more wage change.) You would |inerease | your saving. (The event indicates that real income is rising. Saving ‘decrease is a normal good.) Page 9‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e Kamika lives in Chicago but goes to schoo! in Tucson, Arizona. For the last 2 years, she has made four trips home each year. During 2012, the price of a round-trip ticket from Chicago to Tucson increased from $350 to $600. As a result, Kamika decided not to buy a new outfit that year and decided not to drive to Phoenix with friends for an expensive rock concert. Kamika's demand for clothing and concert tickets can be expected to: OA. ise, because these items are a smaller portion of her budget. OB. fall, because more of her income will be used for plane tickets OC. tise, because less of her income will be used for plane tickets OD. fall, because she won't need as many new outfits since she will be traveling less. Explain why both income and substitution effects might be expected to reduce Kamika's number of trips home. OA. Plane travel is a normal good and there are potential substitutes for trips home by air travel OB. Plane travel is an inferior good and there are potential substitutes for trips home by air travel. OC. Plane travel is a normal good and there are no substitutes for trips home by air travel OD. Plane travel is an inferior good and there are no potential substitutes for trips home by air travel. During 2010, Congress debated the advisability of retaining some or all of the tax cuts signed into law by former President George W. Bush in 2001 and 2003 and set to expire at the end of 2010. By reducing tax rates across the board, take-home pay for all taxpaying. workers would increase, The purpose, in part, was to encourage work and increase the supply of labor. Households would respond the way the president hoped, but only if income effects were stronger than substitution effects, Do you agree or disagree? OA. Disagree: Ifthe income effect were stronger than the substitution effect, houscholds would work less. OB. Disagree: The income effect cannot be stronger than the substitution effect. OC. Agree: If the income effect were stronger than the substitution effect, households ‘would work more, OD. Agree: Households responded the way the president hoped. Page 10‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics 10e The labor supply curve shows: OA op oc. op. the quantity of labor demanded at different wage rates. Its shape depends on how households react to changes in the wage rate. the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in real wealth, the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate. the quantity of labor supplied at different product prices, Its shape depends on how households react to changes in product prices. Page ICourse: study purpose Book: Case/Fair/Oster: Principles of Microeconomics We ‘Assignment: HW6 30 36 30 18 Mei's Budget Constraint 02°46 8 10 12 14 16 18 20 22 24 [Evenings at Zanzibar per month inferior goods normal goods ANSWERS - Page |‘Assignment: HW6 Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics We 20 0.50 10 0.15 0.10 Yes 136 2 3 4 5 6 7 8B Number oF cookies ANSWERS - Page 2Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics We wu oo es eae rete tal Number of cookies c Market for Good X Line Quantity of x demand ANSWERS - Page 3 ‘Assignment: HW6Course: study purpose Book: Case/Fair/Oster: Principles of Microeconomics We ANSWERS - Page 4 ‘Assignment: HW6