Chapter 20 – Elasticity: A Measure of Responsiveness
#1 - Page 432 – Answer question #2.4 (MADD Beer Tax…). Show your computation.
If the goal of MADD is to decrease highway deaths by 39% then they would need to increase beer taxes by 30%. I arrived at this conclusion by taking 39% (because the highway deaths are proportional to the beer consumption) then I divided this number by 1.3 (the elasticity of demand) this brought me to the answer of 30% (change in price).
#2 – How can we use the price elasticity of demand to predict the effect of taxes?
In the example of the beer and highway deaths, we can use the concept of price elasticity to predict the effects of a change in the price of beer on drinking and highway deaths. Since the price of beer is directly related to consumption among young adults and the consumption is directly related to the highway deaths, if one changes they all change. Since the government cannot force beer manufacturers or retailers to increase the price of beer. However, the government does have control over taxes and they can increase the price through tax increases. This will lower beer consumption and ultimately lower highway deaths.
Chapter 21 – Market Efficiency and Government Intervention
#3 - Page 456 – Answer question #1.3 (In Figure 21.1…)
Tupak’s consumer surplus is $9, compared to $6 for Thurl.
#4 – How does a minimum price (floor price) affect the market?
A minimum price creates an excess supply within the market because producers want to sell more than consumers want to buy. A minimum prices decreases the total surplus of the market.
Chapter 22 – Consumer Choice Using Utility Theory
#5 - Page 473 – Answer question #2.7 (Dirk spends…)
Dirk spends $20 each week on muffins (price=$2) and bagels (price=$1). This week he bought four muffins and 12 bagels. The marginal utility of muffins is 30 utils and the