ECON 100: Principles of Economics Assignment I Due Date: January 28, 2013 Part A (10 marks) 1. What determined how much you are willing to give up for your preferred choice? a) Your past purchase b) Your age c) How badly you want it d) Your material status 2. The term demand a) describe consumers’ desire for a particular product/service b) describe consumers’ willingness and ability to pay for a particular product/service c) refers to consumers’ need for a particular product/service d) all of the above 3. The diamond-water paradox illustrates the idea that what consumers are willing to pay for a particular good depends on the a) real-income effect b) total benefit c) substitute effect d) marginal effect 4. For an inferior product/service, an increase in consumer income will lead to a) a decrease in demand b) an increase in supply c) an increase in demand d) a decrease in supply 5. A retailer noticed that by lowering his price slightly, his total revenue decreased. The price elasticity of demand within the current price range is a) elastic b) inelastic c) unit elastic d) undetermined 6. Which of the following does not influence the price elasticity of demand? a) Total revenue earned when the price changes b) Proportion of the income spent on the product/service c) Number of substitutes the product/service has d) Time to adjust 7. Voluntary trade a) is a zero-sum game b) results in mutually beneficial gains because of differences in comparative advantage c) results in mutually beneficial gains because of differences in absolute advantage d) is always a mutual benefit 8. The opportunity cost for you to attend college a) may be equal to, or less than, the money cost b) is greater than the money cost c) depends on the income you can earn after graduation d) is determined by what you could earn if you did not go to college 9. For any activity, failure to consider a) past costs will result in too much for that activity b) past benefits will result in too little of that activity c) external costs will result in too much of that activity d) external benefits will result in too much of that activity 10.The production possibility boundary for Edward is given in the table Chair 100 80 60 40 20 0 Table 0 10 20 30 40 50 Edward’s opportunity cost of producing an additional table is ___2 Chairs__________ Part B (10 marks) Consider the table below to answer the following questions Price (cent per bag) 50 60 70 80 90 100 Quantity demanded (millions of bags/week) 160 150 140 130 120 110 a) Construct a demand curve on a scaled diagram Price D0 D1 100 Demand Function 50 110 160 Quantity b) Calculate the slope of the demand curve c) Calculate the price elasticity of demand when price increases from 70 cents to 80 cents inelastic demand for the good d) Explain what will happen to the demand function if income increases. For what type of good your this illustration is correct. It’s a change in demand. When income increases demand increases. When income increases the above demand function will shift to the right. It means at every price level, a consumer can now afford more of the good. The consumer purchasing power has increased. In law of demand we assume all other things constant. Under this condition, when the demand function shifts to the right, it indicates the good is a normal good – when income increases demand for the good also increases.