Economics Homework Four Answers - Student Seven

AddisonDM 22:12, 10 October 2009 (EDT) 1.Utility. Utility is meant to express personal satisfaction that may have nothing to do with money.

Right, or "total utility" to distinguish it from "marginal utility." Note that utility includes monetary value as well as non-monetary value.

2.Your consumer surplus would be $1,000. Consumer surplus is the difference between the amount of money you would or are willing to pay for something and the actual amount you pay. You were willing to pay $10,000, but only had to pay $9,000, so the surplus is $1,000.

Excellent.

3.If you have five hours of time and two activities with which to maximize your marginal utility, you have to pick the hours from each that are worth the most utility. This means three hours of hiking (23 units of utility) and two hours of reading (11 units of utility).

Good, but you didn't total the utility as requested (minus 1) and didn't give the order of the activities.

4.Tell the dealer to give you a discount on the slightly used car and not to be a sleazy used car salesman. Then tell him that most dealers give discounts and most buyers demand them (citing the market), and so should he. Even if you are willing to buy at full price, it doesn’t mean that the market cannot support the car’s sale at a lower price. If he doesn’t discount, find another dealer!

Excellent.

5.This line is straight because anywhere along it substitutions can be made and utility is not affected. It slopes down as you move to the right because utility decreases with too much quantity? Extra credit: Negative for decreasing utility. 1 because of the “perfectness” of it, 1 representing “perfect”?

The slope of negative one is because it is a perfect one-for-one substitute. Answer is otherwise good.

6.The “income effect” is the reality of the consumer essentially gaining more income when a good that he buys decreases in price. Conversely, his income essentially goes down when the price of that good increases.

Right, but you might link this to the Law of Demand.

7.I would say charity comes first because without the foundation of charity a free market turns into an unfair, monolithic corporate bloc that ignores the consumers and cares only about more money. While charity is not a prime motivation in most businesses, it is a good defense, and possibly a necessary one, against a private sector motivated solely by greed.

OK, but your answer seems to bring social policy and normative statements of opinion when the question is more factual in nature. (Minus 1).

Honors

9\. A Giffen good may exist under certain conditions, such as when raising the price creates an illusion of better quality. I would say that the potatoes, rice, and tortillas are not really Giffen goods because they are already the primary food source for poor people. When prices go up in general, the ratio of cheap food to expensive food may very well be just about the same. It is possible that demand will go up for cheaper foods when all prices are raised, however, though I don’t think by very much. Political bias could be a reason for claiming the existence of Giffen goods, but I don’t think it is. Researching into the possibility of Giffen goods is worthy and should not just be dismissed as confusing the laws of the free market. Every rule has an exception, after all, and the exceptions prove the rule!

Excellent answer. May use as a model!

Terrific work: 108/110. Congratulations!--Andy Schlafly 14:30, 11 October 2009 (EDT)