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Homework #1 Micro Fall 2015 (revised 8/27/15) Name: (Make two copies, one to turn in for grading, one for yourself) 1. (5 points) True or False A. _______ The price of a good rises, causing the demand for another good to fall; the two goods must be substitutes. B. _______ If the demand for bicycles increases, then price will increase. C. _______ If the price of bicycles increases, then demand will decrease. D. _______ If demand increases and supply decreases, then price has to increase. E. ________ If demand and supply increase, then price has to increase. 2. (6 points) Each of the following events would tend to increase or decrease either the demand for or the supply of electronic games. Determine the change in supply and demand. Indicated for each: increases (I), decreases (D) or unchanged (NC) for the following scenarios. Supply a. b. c. d. e. f. Demand It becomes known by consumers that there is going to be a major sale on these games one month from now. ______ (a) _______ The workers in the electronic games industry receive a $3/hour wage increase. ______ (b) _______ It is announced by a respected research institute that children who play electronic games also improve their grades in school. ______ (c) _______ Because of an increase in productivity, the amount of labor necessary to produce a game decreases . ______ (d) _______ The federal government imposes a $5 tax per game on the manufacturers of the electronic games. ______ (e) _______ The consumers who play these games believe that a shortage of the games is developing in the economy ______ (f) _______ 3. (4 points) Suppose the market for a 5lb bag of rice can be described by the graph below. Suppose the Eleanor Rigby, instead of picking up rice in a church, prefers to buy her rice. a. If Eleanor Rigby were willing to pay as much as $8 for a bag of rice, how much surplus would she receive if she pays the market price for a 5lb of rice? b. Suppose Koda Farms requires at least $5 per 5lb bag to be willing to sell in this market. What is Koda Farms’ producer surplus for one 5lb bag of rice in this market? c. How much total consumer surplus is received in this market? d. How much total producer surplus is received in this market? e. What is the total surplus (combined consumer and producer surplus) in the market? 4. (10 points) Quantity-Hot Dogs (a) 750 (b) 900 (c) 850 (d) 800 (e) 550 Price of Hot Dogs $2.50 $2.00 $2.50 $2.00 $3.00 Weekly Income 150 170 150 190 150 Price of Canned Beans $0.80 $0.90 $1.00 $0.90 $0.80 A. Calculate the price elasticity of demand for hot dogs. ROWS_____ &_____ B. Determine whether hot dogs are normal or inferior goods. Explain why. ROWS_____ &_____ C. Determine whether hot dogs and beans are complements, substitutes or unrelated. ROWS_____ &_____
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