Reference no: EM13182460
(1) The price of Steak Burritos in Chipotle here in Davis is $5.50 . I would be willing to pay $10 dollars for the first Steak Burrito, $8 for the second, $6.00 for the third ,$4.00 for the fourth , and nothing for the fifth or more burritos .
a. How many Burritos would I buy. (Ignore taxes here)
b. Compute my total consumer surplus , and illustrate using a graph.
c. If the price of steak burritos fall to $3.00, how many burritos would I buy and what is change in my total consumer surplus compared to the situation in b. Illustrate using a graph.
(2)Now the following demand function for good 1 : q1= 20-2p1+4Y
(a) Initially the equilibrium price is $=2 and income is $10. What is the total consumer surplus at equilibrium point? What if the demand function is q1=p1^-2Y
(b) If the government imposes consumption tax on the good that raised prices by $1, by how much will the consumer's surplus change?
(c) Show the relationship between EV, CV, and consumer surplus using compensated and uncompensated demand curves.
(d) If you your income is $ 1million,you spend $100 on good 1, and income elasticity was 0.02, does it matter whether you use EV, CV, or consumer surplus to measure the change in consumer welfare in (b).
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