Economics Homework Four Answers - Student Three

Trisha M.

1. A consumer's overall satisfaction is expressed in economics as his total utility.

Correct.

2. If I were to buy the car for $9,000 instead of the $10,000 I was willing to pay for the car...then I would have saved $1,000! The "consumer surplus" concept means that if I am willing to pay up to a certain amount for something and I actually pay less for it, then I have actually saved a few dollars.

Good. Just to be clear: the "consumer surplus" is $1000 here.

3. If I were to hike and read for 5 hours, to get the maximum utility out of that time I would have to hike for an hour, then read, hike, read, then hike again. By alternating between the two activities I could maximize my total utility because each time I hike and then read the activity would seem fresh again. So, imagine that I have hiked for an hour and I start to feel tired, so then I get out my book for an hour...feeling refreshed, I hike for another hour, which I believe would still hold the 10 utility points because it is like starting a fresh activity, then if I read again, it also would keep its maximum utility points of 6 because it would be like starting a new activity and would be welcome after the long hour of hiking! So, adding up the utility points for those 5 hours I would get 42 utility points for my total utility. However, just supposing that both the activities WERE to decline in utility for those five hours, I would then have to hike for two hours, then read for 2, then hike for one more hour. The total utility would then be: 34

Your last sentence is correct. You'd still get tired more easily hiking the third hour even if you took a break and read first.

4. In order to get the best deal out of the slightly used car, I should ask the dealer to sell it used, not new.

Need to explain this economically: the dealer should lower his price for you. (Minus 1).

5. The indifference curves are straight lines because no matter where the person is, on either of the lines, they prefer the good/service just the same as before.

Not explained precisely. Be sure to review the model answers when available Sunday night. (Minus 2).

6. The income effect is the effect that the price of a good/service has on our income. If the price of something increases, our income will decrease, if the price of the good/service decreases, our income will increase.

Good, but could also link to Law of Demand. (No points deducted).

7. I think charity relies on the free market because if the free market did not exist, then charity would not exist.

Good, could use as a model.

Score: 67/70. Good answers, and fine overall effort!--Andy Schlafly 11:18, 11 October 2009 (EDT)