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Week 4 Managerial Economics Order of Business • • • • Homework Assigned Lectures Other Material Lectures for Next Week Homework Pashigian, p 86, Exercise 2-2 Year 1987 1988 1989 1990 1991 1992 PX 100 110 90 100 100 100 Q 80 90 100 100 90 110 PY 50 40 40 50 40 40 Income 20,000 18,000 18,000 20,000 20,000 25,000 Year 1987 1988 1989 1990 1991 1992 PX 100 110 90 100 100 100 Q 80 90 100 100 90 110 PY 50 40 40 50 40 40 Years to calculate Income 20,000 18,000 18,000 20,000 20,000 25,000 Year 1987 1988 1989 1990 1991 1992 PX 100 110 90 100 100 100 Q 80 90 100 100 90 110 PY 50 40 40 50 40 40 Income 20,000 18,000 18,000 20,000 20,000 25,000 Bias due to changes in preferences Year 1987 1988 1989 1990 1991 1992 PX 100 110 90 100 100 100 Q 80 90 100 100 90 110 PY 50 40 40 50 40 40 Complements or Substitutes Income 20,000 18,000 18,000 20,000 20,000 25,000 Year 1987 1988 1989 1990 1991 1992 PX 100 110 90 100 100 100 Q 80 90 100 100 90 110 PY 50 40 40 50 40 40 Income 20,000 18,000 18,000 20,000 20,000 25,000 Price elasticity of Y; no year Suppose the demand function for a product is Q = 150 - 12p. Compute the point elasticity of demand at Q = 30. Then compute the arc price elasticity of demand over the interval Q= 40 to Q = 30; over the interval Q = 31 to Q = 30; over the interval Q = 30.1 to Q = 30. Comment on the pattern of these price elasticities. Pr ice 10 Slope 12 4 Quantity 30 Q-High 40.0 31.0 30.1 Q-Low 30 30 30 P-High 9.17 9.92 9.99 P-Low 10 10 10 Eta -3.28571 -3.91803 -3.99168 Explain whether you agree or disagree with the following statement: An economist would classify a new automobile that does not start in cold weather as an inferior good. (Apologies for giving this question given the recent weather, but it IS a good question). Explain whether you agree or disagree with the following statement: An economist would classify a new automobile that does not start in cold weather as an inferior good. (Apologies for giving this question given the recent weather, but it IS a good question). Does the quantity demanded increase or decrease with income? Suppose the demand function for a product is Q = 150 - 12p. The good is currently selling for $5. Compute consumer surplus. Then compute the deadweight loss if the government imposes a tax of $2 on each unit sold. Q=150-12P $5 90 $12.5 Q=150-12P 7.5 $5 90 90 $12.5 Q=150-12P 7.5 $5 90 90 $12.5 Q=150-12P 7.5 1 1 CS BH (90)(7.5) $337.50 2 2 $5 90 $90 $12.5 Q=150-12P $7 $5 66 90 $12.5 DWL=$24 Q=150-12P $7 $5 66 90 A consumer does not subscribe to satellite TV, and lives in an area where there is no cable TV. Describe in words the shape of his indifference curves between satellite TV and other goods. Tell me what you can tell about their shape? OG He gets more utility from doing without satellite TV than he would with. S Lectures for this Week • • • • • • The Economics of Bads The Value of Time Consumer Surplus Applying Consumer Surplus Consumer Surplus and Deadweight Loss More on Consumer Surplus The Economics of Bads The Value of Time Consumer Surplus Applying Consumer Surplus Consumer Surplus and Deadweight Loss More on Consumer Surplus Lectures for Next Week • Consumer Surplus and Indifference Curves • Priceline and E-Bay • Compensated Demand Curves • Income and Substitution Effects • Uncertainty • Uncertainty and Risky Behavior • Buying Insurance • A Numerical Problem • Who Robbed C.C. •Consumer Surplus and Indifference Curves •Priceline and EBay •Compensated Demand Curves •Income and Substitution Effects •Uncertainty •Uncertainty and Risky Behavior •Buying Insurance •A Numerical Problem •Who Robbed C. C.