Chapter 7 1. Suppose that the market for automobiles has the follo...

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Chapter 7 1. Suppose that the market for automobiles has the following supply and demand schedules: Price of car Quantity demanded Quantity supplied (thousands) (thousands) $20,000 120 45 $21,000 110 50 $22,000 100 55 $23,000 90 60 $24,000 80 65 $25,000 70 70 $26,000 60 75 $27,000 50 80 $28,000 40 85 $29,000 30 90 $30,000 20 95 a) Using this information, draw the demand curve and the supply curve for automobiles. b) What is the equilibrium price and quantity for automobiles? c) Assume the government levies a tax of $3000 per car. What is the price that consumers will pay for a car now? Has the price that consumers pay risen by the full amount of the tax? Explain why. d) What is the price received by automakers? Illustrate the effect of this tax in your diagram from part a. e) Calculate the government revenue raised by this tax. f) Is the market efficient, with the $3000 excise tax? Explain. Illustrate your answer with a diagram. 2. In each of the following cases, explain whether the incidence of the tax falls more heavily on consumers or produces. a) The government imposes a tax of $0.75 per bottle on bottled water. As a result, the number of bottles sold decreases by 70,000. With the tax, consumers are paying $1.25 per bottle, which is $0.25 more than they were paying without the tax. b) The government imposes an excise tax the sale of all movie tickets sold. Before the tax was imposed, theaters sold a total of 400,000 tickets per year at a price of $15 per ticket. With the tax, moviegoers now pay $16.50 per ticket and the theaters receive $13.50 for each ticket sold. Because of the tax, ticket sales drop to 300,000 tickets per year. c) The government imposes an excise tax on the sale of boots. Before the tax, 600,000 pairs of boots were sold each year at a price of $150. After the tax is imposed, 500,000 pairs of boots are sold. Consumers pay $157 for a pair of boots now, and the producers receive $144 from each pair sold. Chapter 9 3. Alexis has a job as a film editor where she makes $150,000 per year. She owns a building that she rents for $70,000 per year. She is considering quitting her editing job and using the building she owns to open an ice cream shop. Alexis calculates that she will make $250,000 per year selling ice cream. She will need to pay $20,000 for ingredients and equipment, along with another $20,000 to hire extra help in the summer. a) Alexis' accountant says that she will make a profit. Is the accountant correct? How much profit does Alexis' account say she will make? Explain. b) Should Alexis switch from film editing to the ice cream business? Explain. 4. You spent $50 to reserve a seat at a dinner that you believe will give you a benefit equal to $100. The dinner reservation cannot be exchanged or refunded. After making the reservation, your friend offers to sell you a ticket to the opening night of a film that you want to see. The movie ticket will cost $20 and you know that seeing the film will give you a benefit equal to $110. Should you go to the dinner or the film? Explain. 5. Three cake makers have very different ways of operating their businesses. The table below shows the total cost for each of them, for making cakes. Quantity of cakes Ciara's total cost Ryan's total cost Linda's total cost $0 $0 $0 1 $5 $28 $2 2 $10 $48 $5 3 $15 $60 $9 4 $20 $66 $14 5 $25 $69 $20 6 $30 $70 $27 a) Calculate the marginal cost for each cake maker. b) Draw the marginal cost curve for each. c) Who has increasing marginal cost, who has decreasing marginal cost, and who has constant marginal cost? 6. Raheem works as an Uber driver in his spare time. His total benefit and total cost depend on the number of hours that he drives, as shown in the table below. Quantity of hours worked Total benefit Total cost $0 $0 1 $80 $9 2 $140 $21 3 $180 $36 4 $200 $54 5 $200 $75 a) Use marginal analysis to determine Raheem's optimal number of hours worked. Explain. b) Calculate the total profit Raheem will earn if he works the optimal number of hours. Chapter 10 7. Each week, Kadeem sets aside $12 to be used to buy either doughnuts or bagels. a) If the price of a doughnut is $2, and the price a bagel is $4, list all the consumption bundles that will use up Kadeem's budget. b) Given the following information about Kadeem's utility from consuming doughnuts and bagels, calculate his marginal utility and his marginal utility per dollar, and fill in the following tables: Doughnuts Total Utility Marginal Utility Marginal Utility per Dollar 1 16 2 28 3 36 4 40 5 42 6 41 Bagels Total Utility Marginal Utility Marginal Utility per Dollar 1 36 2 60 3 72 8. Use your answers from question seven to answer the following questions. a) Does Kadeem have diminishing marginal utility when consuming doughnuts? Does he have diminishing marginal utility from consuming bagels? What does diminishing marginal utility mean? Looking only at Kadeem's utility from consuming doughnuts, what happens when Kadeem consumes a sixth doughnut? What does this mean? b) Calculate the total utility that Kadeem will receive from each of the consumption bundles in part a, from question seven. c) Using marginal analysis, explain how Kadeem can maximize his utility from doughnuts and bagels, with his budget of $12. 9. For each of the following situations, decide whether the consumption bundle that Angelika is considering is optimal or not. If the bundle is not optimal, explain how Angelika could change her spending on the two goods to increase her total utility. a) Angelika has $120 to spend on tickets to hockey games and tickets to soccer matches. The hockey tickets cost $40 a piece, and the soccer tickets cost $20 each. She is considering going to see two hockey games and two soccer matches. She believes that the second hockey game will give her the twice as much additional utility as the second soccer match. b) Angelika has $12 to spend on ice cream cones and cookies. The cookies cost $2 a piece, and the ice cream cones cost $3 each. She is considering purchasing three cookies and two ice cream cones. The last ice cream cone that she purchases gives her the same amount of additional utility as the last cookie. c) Angelika has $14 to spend on pencils and pens. The pencils cost $1 a piece, and the pens cost $2 each. She is considering purchasing four pencils and four pens. She believes that the fourth pen will give her twice as much additional satisfaction as the fourth pencil.

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