ECON-2006EG Study Guide - Quiz Guide: Arc Elasticity, Ceteris Paribus, Budget Constraint

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ceruleanraccoon367

7 Mar 2021

School

Laurentian

Department

Economics / Science Èconomique

Course

ECON-2006EG

Professor

Byron Eastman

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Document Summary

The buyer"s problem has three parts: what you like, prices and your budget. An individual"s demand curve reflects an ability and willingness to pay for a good or service. Consumer surplus is the difference between what the buyer is willing to pay for a good and what the buyer actually pays. Elasticity measures a variable"s responsiveness to changes in another variable. Together, these element provide the foundations for the demand curves: the scarcity principle (chapter 1) is at work. Choosing to buy more sweaters means buying fewer jeans, and vice-versa: because your budget constraint is a straight line, the slope is constant. This means that your opportunity cost is constant. We can compute the opportunity costs= opportunity cost (1)= loss in (2) / gain in (1) An optimizing buyer makes decisions at the margin. You bought item 1 at step 1, so now you buy item 2 or your second item 1.

Related Questions

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market demand

consumption bundle

substitution effect

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total effect

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transitive property of preferences

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the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

The US Bureau of Labor Statistics calculates inflation by taking samples of prices for a 'basket of goods and services' a 'typical consumer' would purchase. Each good and service is assigned a 'weight' or the percentage of income spent on that product. For example, 'cakes, cupcakes, and cookies' are given a weight of 0.197. This means that about 0.2% of the 'average' household spending is made on these items. Of course, an individual's spending may vary significantly from the hypothetical basket of goods and services. In this assignment, you will review the BLS's Relative importance of components in the Consumer Price Indexes and compare how your household spending measures up to the typical consumers.

Part I

Considering your household budget, divide up your spending into these eight broad categories:

Category	CPI Weight	Your Budget
Food and beverages	14.8
Housing	41.5
Apparel	3.6
Transportation	17.3
Medical Care	6.6
Recreation	6.3
Education & Communication	6.4
Other	3.5
Total	100	100

How closely does your household spending correlate to the typical consumer? How might your household be disproportionately affected by a change in one of these broad categories? Do you believe that the government's weightings are an accurate approximation for the whole economy?

yellowpanda707

A. There are some "status goods" like Rolex watches, that people want to own because they are expensive. In contradiction to the law of demand, if Rolex watches were less expensive, few "status-seeking" consumers would demand them. Reconcile status products or services with the law of demand. How does the existence of cheap "knock-off" imitations of Rolex watches fit with the law of demand?

B. Evidence suggests that babies are a normal good for lower income earners and an inferior good for higher income earners. Use the income elasticity of demand to explain what this means, using the definitions of "normal" and "inferior" goods.

C. Roses sell for about $40 a bouquet most of the year, and worldwide sales are 6 million bouquets per month. Every February, the price of roses doubles to $80 a bouquet, but the quantity of roses demanded and sold also increases, to 24 million bouquets per month. The cost of producing roses doesn't change throughout the year. Can you explain what else is going on that saves the law of demand?

D. Your business is about to launch an advertising campaign, announcing your new low prices. You hope the ads will bring in many more customers. Explain why you need to be concerned about your elasticity of supply.

turquoiseelk931

ECON-2006EG Study Guide - Quiz Guide: Arc Elasticity, Ceteris Paribus, Budget Constraint

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