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Basic Econ Homework 2

The document contains a series of economic problems and their solutions related to concepts such as economic surplus, equilibrium price and quantity, price elasticity of demand and supply, and profit calculation. Each problem is followed by a calculation that leads to a specific result. The problems cover various scenarios involving consumer and producer behavior in the market.

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3 views4 pages

Basic Econ Homework 2

The document contains a series of economic problems and their solutions related to concepts such as economic surplus, equilibrium price and quantity, price elasticity of demand and supply, and profit calculation. Each problem is followed by a calculation that leads to a specific result. The problems cover various scenarios involving consumer and producer behavior in the market.

Uploaded by

barbara esc
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Homework 2 – (chapters 1,2,3,4)

1. Suppose the most you would be willing to pay for a plane ticket home is $300. If you buy
one for $240, then your economic surplus is

300 – 240 = 60
RESULT: $60

2. Suppose Michelle is willing to pay up to $25,000 for a new motorcycle. If she


buys one for $10,000, her economic surplus would be .

25,000 – 10,000 = 15,000


RESULT: $15000

3. If Sasha works for 5 hours she can rent out 8 apartments, and if she works for 6 hours she
can rent out 9 apartments. The average benefit from 5 hours of work equals

8 apartments / 5 hours = 1.6 apartments


RESULT: 1.6 apartments

4. Suppose the market demand curve is given by Qd = 70 − 10P, and the market supply
curve is given by Qs = 10 + 10P. What is the equilibrium price and quantity?

Qd = 70 − 10P
Qs = 10 + 10P
=70-10P=10+10P Qd=70-10(3) Qs = 10+10(3)
=70-10=10P+10P =70-30 =10+30
=60 = 20P Qd=40 Qs=40
=20 20
=3=P
RESULT: P=$3 Q=$40
5. Suppose that Tom bought a bike from Lauren for $160. If Lauren’s reservation price was
$150, and Tom's reservation price was $200, the seller’s surplus from this transaction was

200 – 160 = 40
RESULT: $40
6. Suppose that Tom bought a bike from Lauren for $150. If Lauren’s reservation price was
$125, and Tom's reservation price was $180, the seller's surplus from this transaction was

150 – 125 = 25

RESULT: $25

7. If a 25 percent decrease in the price of a good leads to a 30 percent increase in the


quantity demanded, then what is the price elasticity of demand?

Qd/P = Price elasticity of demand


30 / 25 = 1.2
RESULT: 1.2

8. If the price elasticity of demand for food is 0.08, then a 10 percent increase in the price of
food will lead to a decrease in quantity demanded.

price elasticity of demand/increase in price


0.08 / 10% = 0.8%
ANSWER: 0.8%
9. When Acme Dynamite produces 400 units of output, its variable cost is $8,000, and its
fixed cost is $660. It sells each unit of output for $25. When Acme Dynamite produces
400 unitsof output, its profit is

8000+660= $8660 (total costs)


400x25= $10,000 (total revenue)
$10,000-$8,660 = $1340
RESULT: $1340

10. Suppose an increase in the price of hamburgers from $2 to $2.50 leads to an increase in
quantity supplied from 100 units to 120 units. At the original price, the price elasticity of
supplyfor hamburgers is so supply is ______.

2/2.50 = 0.8, inelastic


RESULT: 0.8, inelastic

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