ECO100Y5 Study Guide - Midterm Guide: Carport, Nairu, Human Capital

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ECO100Y5 Full Course Notes

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Except the diagram in question 7, any part of your answers done in pencil will not be eligible for appeal. Do not use red-coloured pen or pencil in your answers. Do all your calculations for question 6 in the two extra pages provided in which the contents will not be graded. You must relate your explanation in question 7 to your diagrams for full marks. Only put your answers to questions 6 and 7 in the designated page(s), and do not separate any page from this test. If real income grows at approximately per year, the number of years it will take for real income to double is approximately (a) . (b) . (c) . (d) . (e) . Solve for the short-run equilibrium price and real in this macro model. (8 marks) 340 (b) suppose the short-run equilibrium in part (a) is also the long-run equilibrium such that the potential output .

Related Questions

PLEASE FIND SOLUTIONS TO WHERE QUESTION MARKS ARE INDICATED AND SOLVE THE FORMULA AT BOTTOM

Columns 1 through 4 in the accompanying table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the price of good A is $9.00, the price of good B is $3.00, the price of good C is $2.00 and the price of good D is $12.00. Ricardo's income is $53.00.

Column 1		Column 2		Column 3		Column 4		Column 5
Units of Good A	MU	Units of Good B	MU	Units of Good C	MU	Units of Good D	MU	Number of Dollars Saved	MU
1	72	1	24	1	15	1	36	1	5.00
2	54	2	15	2	12	2	30	2	4.00
3	45	3	12	3	8	3	24	3	3.00
4	36	4	9	4	7	4	18	4	2.00
5	27	5	7	5	5	5	13	5	1.00
6	18	6	5	6	4	6	7	6	0.50
7	15	7	2	7	3.5	7	4	7	0.25
8	12	8	1	8	3	8	2	8	0.13

What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility?
Price of good A: $9.00, Units of A: ????
Price of good B: $3.00, Units of B: ?????
Price of good C: $2.00, Units of C: ????
Price of good D: $12.00, Units of D: ????

b. How many dollars will Ricardo choose to save? $?????

c. Check your answers by substituting them into the algebraic statement of the utility-maximizing rule.

( $ Ã ) + ( $ Ã ) + ( $ Ã ) + ( $ Ã ) + $ = $

cyanbee816

Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?

Question 1 options:

1)	buy less of both coffee and donuts.

2)	buy less coffee and more donuts.

3)	buy more coffee and less donuts.

4)	spend the same amount on coffee as he does on donuts.

Question 2

What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?

Question 2 options:

1)	the optimal consumption bundle.

2)	the optimal production bundle.

3)	diminishing marginal utility.

4)	optimal point.

Question 3 (1 point)

What does the economic theory of marginal utility infer?

Question 3 options:

1)	consumers naturally know which consumption choices will maximize their utility.

2)	consumers who watch market trends are better at maximizing their utility than are those who do not watch those trends.

3)	one cannot maximize utility without taking an economics class that explains utility theory.

4)	one cannot maximize utility without doing the math of calculating the ratios of marginal utility divided by price.

Question 4

Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?

Question 4 options:

1)	Her income elasticity of demand for chocolate is equal to one.

2)	Her income elasticity of demand for chocolate is equal to zero.

3)	Her price elasticity of demand for chocolate is equal to one.

4)	Her price elasticity of demand for chocolate is equal to zero.

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Question 5 (1 point)

Why does the demand for a good become relatively more elastic?

Question 5 options:

1)	substitutes for the good become more available.

2)	substitutes for the good become less available.

3)	the good becomes more of a necessity.

4)	the time allowed for adjustment is shortened.

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Question 6 (1 point)

Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?

Question 6 options:

1)	consumer surplus increases.

2)	consumer surplus decreases.

3)	consumer surplus creates incentive to save.

4)	consumer surplus creates incentive to spend.

Question 7 (1 point)

What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?

Question 7 options:

profit.

revenue.

3)	consumer utility.

4)	consumer surplus.

Question 8

Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?

Question 8 options:

1)	Adam, Brian, Robert, and Sam.

2)	Brian and Robert.

3)	Adam and Sam.

4)	Brian, Robert, and Sam.

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Question 9 (1 point)

Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?

Question 9 options:

Question 10 (1 point)

Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?

Question 10 options:

1)	Manfred will shovel two driveways for a total revenue of $64 and his producer surplus will be $9.

2)	Manfred will shovel three driveways for a total revenue of $75 and his producer surplus will be $12.

3)	Manfred will shovel three driveways for a total revenue of $96 and his producer surplus will be $5.

4)	Manfred will shovel four driveways for a total revenue of $125 and his producer surplus will be $18.

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Question 11 (1 point)

What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?

Question 11 options:

1)	producer shortage.

2)	producer surplus.

3)	consumer shortage.

4)	consumer surplus.

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Question 12 (1 point)

What will happen when there is an increase in the price of eBook downloads?

Question 12 options:

1)	It reduces the marginal utility derived from each dollar spent on eBooks.

2)	It reduces the marginal utility derived from each hardcopy book purchased.

3)	There will not be a substitution effect.

4)	There will not be a change in the number of eBooks in the set of consumption possibilities.

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Question 13 (1 point)

When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?

Question 13 options:

1)	when supply changes.

2)	when product quality changes.

3)	when marketing changes.

4)	when price changes.

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Question 14 (1 point)

Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?

Question 14 options:

1)	25 cups of tea and 50 pastries.

2)	50 cups of tea and 25 pastries.

3)	58 cups of tea and 20 pastries.

4)	60 cups of tea and 30 pastries.

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Question 15 (1 point)

When is producer surplus a positive value?

Question 15 options:

1)	the price the producer is willing to charge equals the market price.

2)	there is no tax applied to the good.

3)	the price the producer is willing to charge is less than the market price.

4)	the price the producer is willing to charge is greater than the market price.

1. Use the table below for the following question. Suppose you have a budget of $6 and that brownies and Twizzlers cost $1 each. What is the consumer optimum?

Number of Brownies	Total Utility of Brownies	Marginal Utility of Brownies	Number of Twizzlers	Total Utility of Twizzlers	Marginal Utility of Twizzlers
0	0	-	0	0	-
1	10	10	1	6	8
2	19	9	2	13	7
3	26	7	3	19	6
4	30	4	4	23	4
5	30	0	5	25	2
6	29	-1	6	25	0

6 brownies

3 brownies and 3 Twizzlers

4 brownies and 2 Twizzlers

any combination of 6 because they're both $1

2. Use the table below for the following question. What is the consumer equilibrium for a $6 budget if the price of brownies rises to $1.50 and the price of Twizzlers remains at $1.00?

Number of Brownies	Total Utility of Brownies	Marginal Utility of Brownies	Number of Twizzlers	Total Utility of Twizzlers	Marginal Utility of Twizzlers
0	0	-	0	0	-
1	10	10	1	6	8
2	19	9	2	13	7
3	26	7	3	19	6
4	30	4	4	23	4
5	30	0	5	25	2
6	29	-1	6	25	0

The consumer will buy all Twizzlers because they're cheaper.

4 brownies

3 Twizzlers and 2 brownies

3 brownies and 3 Twizzlers

3. At Nice Price for the Ice, an ice cream parlor, customers routinely buy a scoop of ice cream for $3. If consumers purchase one scoop of ice cream at $3, then why don't they keep buying more and more scoops for $3 until the store sells out?

People would not want more than one scoop of ice cream because then they would have less money to spend on other goods.

People do not want to consume all the scoops of ice cream because their total utility is higher the less they eat.

At some point, customers do not value an additional scoop at $3, so they will not pay $3 for a scoop after they reach that point.

4. Suppose you plan on eating 50 potato chips. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 chips. After you have eaten 10 chips, your marginal utility decreases even faster with each additional chip. The marginal utility continues to decline until you've eaten 49 chips. The fiftieth chip does not give you any additional utility. After 50 chips, your mouth gets so salty that it's unpleasant to eat anymore, so marginal utility is actually negative for those chips. How many chips should you eat in order to maximize your total utility?

5. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 chips. After you have eaten 10 chips, marginal utility decreases even faster with each additional chip. The marginal utility continues to decline until you've eaten 49 chips. The fiftieth chip does not give you any additional utility. After 50 chips, your mouth gets so salty that it's unpleasant to eat anymore, so marginal utility is actually negative for those chips. How many chips should you eat in order to maximize your marginal utility?

6. At current levels of consumption, Alice is spending her entire budget. If Alice gets 3 utils of satisfaction per dollar spent on ice cream and 2 utils per dollar spent on shampoo, then how should she adjust her consumption to get closer to the consumer optimum?

She is already at the consumer optimum, so no adjustment is necessary.

She should buy more ice cream and less shampoo.

She should buy more shampoo and less ice cream.

She should buy more of both goods.

7. Suppose you are at a restaurant and your favorite dish costs $20. You can get your next-favorite dish for $17. If your next-favorite dish gives you 100 utils, how many additional utils do you need from your favorite dish to spend the extra $3?

17.65

117.65

8. The diamond water paradox is the observation that water is essential to life and inexpensive, while diamonds are not essential and are highly-priced. Which of the other pairs of goods exhibit a pricing structure similar to water and diamonds?

economy & luxury cars

rice & truffles (very expensive mushrooms)

paper clips & gasoline

paper & textbooks

9. Rice is a cheap staple food eaten several times a day by many people all over the world. In Trufflelandia, residents also eat expensive mushrooms known as truffles once every year as a birthday celebration. Rice keeps the people alive and truffles are not necessary for sustaining their lives. Why is rice so cheap and truffles so expensive?

Truffles taste better, so they are worth more money.

Rice is easy to cook, so people buy a lot of it. If people are going to buy so much, then it has to be cheap.

Truffles are more nutritious, and healthy food is always more expensive than unhealthy food.

People eat so much rice that an additional serving of rice has little marginal value, but the marginal value of another serving of truffles is very high.