What is the income elasticity given the information

Reference no: EM13973023

1. Assume the market demand for a particular good is QD P W Po = 4,000 - 0.25 + 0.4 - 0.6 and themarket supply is Q = P -100 S . W and Po are the market wage and the price of a related productrespectively. Round to two decimal places if needed throughout the problem.

A. Assume that the current market wage is $40 and the price of the related product (Po) is$10 per unit. Solve for the equilibrium price and quantity.

B. What is the price elasticity of demand at equilibrium given the information in Part A?

C. What is the income elasticity given the information in Part A?

D. What is the cross-price elasticity with respect to Po given the information in Part A?

E. Is the good represented by the demand function at the beginning of the problem a normalor inferior good? Circle one.

NORMAL INFERIORF. Are the good represented by the demand function at the beginning of the problem and therelated good complements or substitutes? Circle one.

COMPLEMENTS SUBSTITUTES2. Assume that Kate's income is $400. She consumes two products movies and hikes. Movies cost $10each and her favorite nature preserve sells permits for $5 per hike.A. (2 Points) If the number of hikes is placed on the x-axis and the number of movies is placed on the yaxis.What are the specific values for the y-intercept and slope of her budget constraint?Y-intercept = __________Slope = __________

B. If the number of movies is placed on the x-axis and the number of hikes is placed on the yaxis.What are the specific values for the y-intercept and slope of her budget constraint?Y-intercept = __________Slope = __________C.

If the number of hikes is placed on the x-axis and the number of movies is placed on the yaxis,is the bundle (20, 35) affordable? Circle one.YES NOD.

If the number of movies is placed on the x-axis and the number of hikes is placed on the yaxis,is the bundle (20, 35) affordable? Circle one.YES NOE. Graph Kate's budget constraint with movies on the x-axis and hikes on the y-axis using theinformation at the beginning of the problem. Be sure to fully label the graph.F.

Assume that the price of hikes increases by 60% and the price of movies falls by 20%. Youcan assume that income is constant. Add a new budget constraint which reflects these two changes toyour graph in Part E.

3. In each of the following parts, determine the utility level achieved by consuming the given bundle.A. (1 Point) 2121U = X Y Point: (4, 9) Utility Level = __________B. (1 Point) U = X + 2Y Point: (5, 5) Utility Level = __________C.

U = min{2X, 4Y} Point: (2, 3) Utility Level = ________4.

Graph the following two functions in the same (X, Y) space. Be sure to include the specificpoints on each function where X = 10.2 20 = XY 2 40 = XY5. Graph the following two functions in the same (X, Y) space. Be sure to include the specificpoints on each function where X = 5.20 = 2X + Y 40 = 2X + Y6. Graph the following two functions in the same (X, Y) space. Be sure to include the specificpoints on each function where X = 20.20 = min(2X ,Y ) 40 = min(2X ,Y )7. The Pinellas County School Board is facing a crisis.

They have discovered that teachers aremanipulating the evaluation system used to rate teacher effectiveness. Rather than teaching studentsrelevant and sometimes difficult material, some teachers play games and make their classrooms "fun"because they realize the students will still provide high ratings of teacher effectiveness if students donot learn anything, but had "fun" classroom experiences that earned the students "an easy A". In somecases, teachers even cover material that is incorrect because it makes them look "cool" to theirstudents. You have been hired as an outside consultant to study the issue and advise the school board.At the beginning of the study, you make several assumptions:i. Teacher ratings can be modeled like consumer preferences. In this case, the rating of teachereffectiveness is equivalent to a utility level in consumer theory.ii.

The rating of teacher effectiveness depends on two values, the number of mistakes a teacher makesand the number of cool activities completed during a specific term.iii. Holding mistakes constant, one additional cool activity increases teacher effectiveness.iv. Holding cool activities constant, one additional mistake decreases teacher effectiveness.v. The marginal rate of substitution of mistakes is increasing. This means that students must receivemore cool activities for each additional mistake when the rating of teacher effectiveness is heldconstant.

A. Use the space below to draw three curves which represent three different teachereffectiveness rating values based on your assumptions. Place mistakes on the x-axis and cool activitieson the y-axis. Label the curves from the lowest to highest rating level as TER1, TER2, and TER3respectively.

B. Do the curves in Part A violate the assumption of monotonicity? Be sure toexplain why or why not.

C. During a meeting to discuss your findings, the school board takes issue with theuse of mistakes as a factor in determining teacher effectiveness. They believe the number ofcorrect items taught would be a better measure to use. They want teacher ratings which reactpositively when teachers do cool things in the classroom and teach correctly.

Rewrite each ofthe five assumptions listed in the given information in terms of cool activities and number ofcorrect items taught. Note, some may change. Some may not. If you believe an assumption isunchanged, you may simply write it as "Same".

D. Use the space below to redraw TER1, TER2, and TER3 given this change. Keep cool activitieson the y-axis. Teacher effectiveness should be increasing as you move from TER1 to TER3. Be sure tofully label the graph.8.

Please initial each of the following statements.

Failure to complete this will result in a onepoint deduction.____ The assignment is open book/open note. Students may discuss this assignment with otherstudents in the class, but must turn in legible, handwritten, and original answers. The posting ofquestions from this assignment to an online forum will be considered cheating.

Answers closelymatching replies to such a post will be scrutinized. Students caught cheating will receive a zero on theassignment and may receive additional punishment under Faculty Senate Rule 49-20.____ This assignment must be turned in at the beginning of class on Wednesday, February 16th. It willbe considered late once the instructor starts lecturing. Late assignments will not be accepted andstudents will receive a score of zero on that assignment.____

All work must be stapled, in the proper order, in the upper-left corner of the paper prior to beingsubmitted. Two points will be deducted if the instructor staples or restaples the work for you.____ Your name and Penn State Access ID must appear at the top of the first page.____ Be sure to fully answer the entire question.

Some questions have multiple parts which ask you toexplain your reasoning. Providing the correct answer without an explanation (when asked for) will notearn students full credit.

Reference no: EM13973023

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