1. In which type of restaurant do you expect the service to be more prompt and courteous?

An expensive gourmet restaurant because gourmet restaurant patrons actually pay for higher service quality, and are therefore more likely to receive it.

2 Ann lives in Princeton, New Jersey, and commutes by train each day to her job in New York City (20 round trips per month). When the price of a round trip goes up from $10 to $20, she responds by consuming exactly the same number of trips as before, while spending $200 per month less on restaurant meals. a) Does the fact that her quantity of train travel is completely unresponsive to the price increase imply that Ann is not a rational consumer? No b) Explain why an increase in train travel might affect the amount she spends on restaurant meals. (Select all that apply.)

The higher price of train tickets makes Ann poorer. Ann has less disposable income so she will go out for dinner less. Ann's travel schedule changes so she is no longer able to certain restaurants.

3 For the demand curve shown, find the total amount of consumer surplus that results in the gasoline market if gasoline sells for $6 per gallon.

10

Price ($/gallon)

6 0 1,000s of gallons/yr Consumer surplus is $ 80,000 per year. 40 100

4.Calculate the price elasticity of demand (in absolute value) at points A, B, C, D, and E on the demand curve below. 80 60 Price 40 20

15 45

30 60 Quantity

Point A B C D E

Elasticity Infinity 3 1 1/3 or .33

0 5. The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices.

a) Graph the daily demand curve for packs of bagels in Davis.

Instructions: On the graph above, click the plotter tool and drag the first point you want to plot onto the grid. Continue clicking and dragging the plotter tool until you must identified all of the 7 necessary points for this line. To remove a point from the graph, drag the point off an edge of the graph. b) Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $3 per pack. 1 c) If all bagel shops increased the price of bagels from $3 per pack to $4 per pack, what would happen to total expenditures? Total expenditures would fall from $ 27,000 to $ 24,000

d) Calculate the price elasticity of demand at a point on the demand curve where the price of bagels is $2 per pack. Instructions: Round your answer to 1 decimal place. .5 e) If bagel shops increased the price of bagels from $2 per pack to $3 per pack, what

would happen to total expenditures? Total expenditures would rise from $ 24,000 to $ 27,000

6. Suppose, while rummaging through your uncles closet, you found the original painting of Dogs Playing Poker, a valuable piece of art. You decide to set up a display in your uncles garage. The demand curve to see this valuable piece of art is as shown in the diagram.

What price should you charge if your goal is to maximize your revenues from tickets sold? $6 per visit

On the graph below, show the inelastic and elastic regions of the demand curve and the point that divides them.

Instructions: On the graph above, click the Plotter tool and drag the point to distinguish between elastic and inelastic regions.To remove a point from the graph, drag the point off an edge of the graph. Then, click and drag the labels to the appropriate locations on the graph. 7. Is the demand for a particular brand of car, like a Chevrolet, likely to be more or less price-elastic than the demand for all cars? More because of availability of substitutes

8. A 3 percent increase in the price of milk causes a 6 percent reduction in the demand for chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk? Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Cross-price elasticity is -2 .

Are the two goods complements or substitutes? Complements

9. Suppose that, in an attempt to entice citizens to conserve energy, the government enacted regulations requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implemented, government officials were then surprised to discover that people used even more electricity than before. Which of the following statements best explains how this increase might have occurred? The government ignored the possibility that the demand curve for electricity might be upward sloping. There is no way the observed change could have occurred if all consumers were fully informed, self-interested, and rational. Because the regulation effectively reduced the price of cooler air, consumers with elastic demands for cooling might have chosen to buy substantially more of it than before. In practice, people often pay little attention to the relevant costs and benefits when deciding how much of a good, like electricity, to use Explanation: What government officials failed to take into account was that people dont demand electricity for its own sake, but rather as a means to accomplish other ends such as producing cooler air for their homes. By requiring people to buy more efficient air conditioners, the government effectively reduced the price of buying cooler air. If the demand for cool air is sufficiently elastic with respect to its price, people may buy more of it than before that they end up using even more electricity.

10. The buyers side of the market for amusement park tickets consists of two consumers whose demands shown in the diagram below.

a) Graph the market demand curve for this market.

Instructions: Click the plotter tool and drag the first point you want to plot onto the grid. Con clicking and dragging the plotter tool until you must identified all 3 of the necessary points f line. To remove a point from the graph, drag the point off an edge of the graph. b) Calculate the total consumer surplus in the amusement park market if tickets sell for $12 each. $ 672 per year