Chapter 4 Practice Questions
ECON CHAPTER 4 PRACTICE QUESTIONS Names____________________
1. Melissa buys an iPod for $ 120 and gets consumer surplus of $ 80. a. What is her willingness to pay? b. If she had bought the iPod on sale for $ 90, what would her consumer surplus have been? c. If the price of an iPod were $ 250, what would her consumer surplus have been?
2. An early freeze in California sours the lemon. Explain what happens to consumer surplus in the market for lemons. Explain what happens to consumer surplus in the market for lemonade. Illustrate your answers with diagrams.
3. It is a hot day, and Bert is thirsty. Here is the value he places on a bottle of water:
Value of first bottle $ 7
Value of second bottle 5
Value of third bottle 3
Value of fourth bottle 1
a. From this information, derive Bert’s demand schedule. Graph his demand curve for bottled water.
b. If the price of a bottle of water is $ 4, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? Show Bert’s consumer surplus in your graph.
4. Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket including the tax, the amount sellers receive net of the tax, and the quantity of the good sold?
5. A recent study found that the demand and supply schedules for Frisbees are as follows: Price per Frisbee Quantity Demand Quantity Supplied $11 1 million 15 million Frisbees 10 2 12 9 4 9 8 6 6 7 8
1. Melissa buys an iPod for $ 120 and gets consumer surplus of $ 80. a. What is her willingness to pay? b. If she had bought the iPod on sale for $ 90, what would her consumer surplus have been? c. If the price of an iPod were $ 250, what would her consumer surplus have been?
2. An early freeze in California sours the lemon. Explain what happens to consumer surplus in the market for lemons. Explain what happens to consumer surplus in the market for lemonade. Illustrate your answers with diagrams.
3. It is a hot day, and Bert is thirsty. Here is the value he places on a bottle of water:
Value of first bottle $ 7
Value of second bottle 5
Value of third bottle 3
Value of fourth bottle 1
a. From this information, derive Bert’s demand schedule. Graph his demand curve for bottled water.
b. If the price of a bottle of water is $ 4, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? Show Bert’s consumer surplus in your graph.
4. Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket including the tax, the amount sellers receive net of the tax, and the quantity of the good sold?
5. A recent study found that the demand and supply schedules for Frisbees are as follows: Price per Frisbee Quantity Demand Quantity Supplied $11 1 million 15 million Frisbees 10 2 12 9 4 9 8 6 6 7 8