1. (a) Explain what is meant by “consumers’surplus” and “producers’ surplus.” Show a market diagram andidentify the areas of each type of surplus.
(b) Explain and use appropriate diagrams todistinguish between a price ceiling
and a pricefloor.
(c) Why do price ceilings and floors makemarkets inefficient?
2. Explain how the concept of priceelasticity of demand can be used to determine a
firm’spricing strategy. Fully explain how once a business firm knows theprice
elasticityof demand for its product, it can determine a pricing strategy(that is,
know whetherto raise or lower price) in order to increase its totalrevenue.
3. (a) Explain how to use and apply Income elasticity of demand inorder to
Determine whether a good is normal, superior, orinferior. Give examples for
each.
4. (b) Explain how to use and apply Cross elasticity of demand inorder to determine whether goods are substitutes, complements, ornot related. Give examples for each.
5. A demand equation is given by P = 200 -.50Q What arethe equations for TR and MR based on this demand equation? At whatlevel of P and Q would we find maximum TR? Show your work.
6. Given the equation, MR = P * [ 1 – ( 1 / I EDI ) ], find the relationship between MR and P if ED = – 2.Then find the implied value of ED if price (P) is set 100% aboveMR.
7. According to online readings, explain how to use indifferencecurve analysis in order to determine consumer equilibrium. That is,explain how to use the combination of indifference curves andbudget lines.
8. Consider the baskets A=(3, 4),B=(5, 7),C=(4, 2). Without knowingBeth’sindifference curves, can you predict which of these basketsshe’ll like the best?Can you predict which she’ll like theleast?
9.Explain why two of Beth’s indifference curves can nevercross?
10.Can one of Beth’s indifference curves cross one of Carol’sindifference curves?Why or why not?
11.Write the equation for a consumer’s budget line. Which symbolsrepresent con-stants and which represent variables?
12.Suppose the price of X is $3 per unit and the price of Yis $5 per unit. Given thefollowing indifference curve diagram,construct three points on the Engel curvefor X.
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