ECO101H1 Lecture Notes - Lecture 5: Budget Constraint, Utility, Market Price

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14 Mar 2016

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ECO101H1 Full Course Notes

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Price paid by buyer: 105 (p + 10) Dd shifts vertically downward by if there is a tax is levied on buyers. At the new equilibrium that is the price received by the seller. Go up to old dd to determine the price paid by buyers. When tax levied on seller, buyer pays market price (and seller receives market price less the tax) When tax levied on buyer, buyer pays market price plus the tax (and seller receives market price) Demand elasticities and the incidence of a tax: Market price increases exactly by the amount of the tax. Buyer pays: p1 = p0 + 10 (full incidence) Seller receives: p1 10 = (p0 + 10) 10 = p0 (no change) Intuition: buyers are completely unresponsive to changes in price, full burden (incidence) of tax is borne by buyers. Buyer pays: p1 = p0 (no change) Seller receives: p1 10 = p0 10 (full incidence)

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Gulp and Devour
Output	TR	TC	Profit	AC	Price	MR	MC	Marginal
								Profit
1	135	100	35	100	135	135	100	35
2	260	200	60	100	130	125	100	25
3	375	300	75	100	125	115	100	5
4	480	400	80	100	120	105	100	5
5	575	500	75	100	115	95	100	-5
6	660	600	60	100	110	85	100	-15
7	735	700	35	100	105	75	100	-25
8	800	800	0	100	100	65	100	-35

Shady Enterprise
Output	TR	TC	Profit	AC	Price	MR	MC	Marginal
								Profit
1	160	50	110	50	160	160	50	110
2	300	125	175	62.5	150	140	75	65
3	420	220	195	75	140	120	100	20
4	520	350	170	87.5	130	100	125	-25
5	600	500	100	100	120	80	150	-70
6	660	675	-15	112.5	110	60	175	-115
7	700	875	-175	125	100	40	200	-160
8	720	100	-380	137.5	90	20	225	-205

What is the profit-maximizing output for each case? Show that three criteria are equivalent: marginal cost equals marginal revenue, maximum profit, and marginal profit equals zero.

copperkoala891

Below are supply and demand schedules for calzones at a local pizzeria. Use the information in these tables to answer the following five questions.

Demand

P: $13 $12 $11 $10 $9 $8 $7 $6 $5 $4

Q: 20 40 60 80 100 120 140 160 180 200

Supply

P: $4 $5 $6 $7 $8 $9 $10 $11 $12 $13

Q: 10 20 30 40 50 60 70 80 90 100 110

1.What is the equilibrium price? $10 correct

2.At what price is there a shortage of 60 calzones? $8 correct

3.At what price is there a surplus of 60 calzones? $11 incorrect

4. At a price of $13, there is a surplus of how many calzones? 110 incorrect

5. At a price of $10, there is a shortage of how many calzones?

1. In the formula for Bayes theorem if the w-probability is greater than the zero than the a-probably is less than the b-probability

2. posted offer markets with at least two sellers will generate prices that remain a little above prices from double auction markets

3. running the price clock in a dutch auction once will produce higher observed prices compared to running the clock twice

4. if losers pay winners in a sealed bid auction then they will eventually be willing to bid up to 75 percent more than the winning prize

5. with only one seller in a posted offer market prices willl tend to move upward toward the monopoly price

6. adjusting the concentration of sweet versus sour enabled rats to have a large negative income effect for sour water

7. a sales tax on large luxury boats will impact the buyers more than the sellers of these boats causing the buyers to pay more than half the cost of the sales tax

8. if each seller knew all of the sellers unit costs and the buyers knew all of the buyers unit values a buyer or seller would be able to calculate the competitive equilibrium price before an experiment began

9. suppose your income taxes rise only on incomes over 250,000 annualkly then your after tax income will be unafftected if your annual income is 100,000

Short Essay Questions

1. Recall the loser pay winner auction experiment done in class.

a. Discuss how these experiments explain why the bidder changed their minds toward wanting to bid well above the value of the prize, even though they refused to do so at the beginning

b. Discuss how the experiment explains why George Bush and many citizens changed their minds about a

ECO101H1 Lecture Notes - Lecture 5: Budget Constraint, Utility, Market Price

ECO101H1 Full Course Notes

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