Download Economics 11 - Bullis Haiku

AP Economics
Homework #4
Fall 2014
Name_______________________________
Block_______
This homework is due on Wednesday, October 8th at the beginning of class. Late homework will be
accepted at a cost of 10% per day until they are graded and handed back (2 days after the due date). At
that point, I will not accept your homework and you will receive a zero. Please be as neat as possible
and show all of your work. If you need more room, use the back of each sheet and indicate you are
doing so. The numbers in parentheses represent the worth of each problem.
1. Consider the market for Burritos. Suppose the equilibrium price and quantity are $4 and 20,
respectively. The choke price is $8, and the minimum price producers are willing to accept is
$2.
(A) Provide a graphical representation of the market for Burritos. (5)
(B) Calculate consumer surplus. (4)
(C) Calculate producer surplus. (4)
(D) Suppose the government sets a price floor equal to $6 per burrito. As a result Quantity
demanded becomes 10 and Quantity Supplied becomes 40. Provide a graphical
representation of this situation. (4)
(E) Given your graph in (D), did the price floor cause a shortage or surplus in burritos? By how
much? (2)
(F) Calculate the value for consumer surplus with the price floor. (3)
(G) Compare your answers in (C) and (F). Are consumers better or worse off? Explain. (3)
2. Suppose a good X is perfectly inelastic.
(A) Draw a correctly labeled graph of a perfectly inelastic demand curve. (4)
(B) What is the price elasticity of demand for this good? (3)
(C) What is the slope of the demand curve for this good? (3)
(D) Is this good more likely to be a luxury or a necessity? Explain. (3)
For the following multiple choice questions, circle the best answer and provide a sentence or two to
explain your result. (12)
3. Which of the following would cause demand for a good to be relatively inelastic?
(A) The good has a large number of close substitutes.
(B) Expenditures on the good represent a large share of consumer income.
(C) There is ample time to adjust to price changes.
(D) The good is a necessity.
(E) The price of the good is in the upper left section of a linear demand curve.
4. If the price of good X rises and the demand for good X is elastic, then the percentage ______ in
quantity demanded is _______ the percentage rise in price, and total revenue _______.
(A) Fall; greater than; rises.
(B) Fall; less than; falls.
(C) Fall: equal to; remains constant.
(D) Rise; greater than; falls.
(E) Fall; greater than; falls.
5. Suppose the cost of producing ice cream increases. As a result, consumer surplus
(A) Decreases.
(B) Increases.
(C) Remains constant.
(D) Decreases, then increases.
(E) Increases, then decreases.