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ID: 1124368 • Letter: P
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1. Joe's demand for spring water can be represented as p 20 Q (where p is measured in $/gallon and Q is measured in gallons). He recently discovered a spring where water can be obtained free of charge. His consumer surplus from this water is Suppose there are two goods, x and y. A consumption bundle A yields the same amount of total utility as consumption bundle B, then 2. A and B must have the same amount of x and y A is on a higher indifference curve than B B1s on a higher indifference curve than A Aand B are on the same indifference curve a. b. C. d. If a market produces a level of output that exceeds the competitive equilibrium output, then 3. a. b. c. d. e. Social welfare will be higher. Producer surplus will be higher. Cost to the sellers will be higher than the value to the buyers Cost to the sellers will be lower than the value to buyers All of the above. 4, The governrnent wants to reduce the consumption of electricity by 5%. The price elasticity of demand for electricity is 00.4. The government shouldExplanation / Answer
1. Since there is no price charged for the spring water, so P = $0.
And, 0 = 20 - Q
Thus, Q = 20 units.
His maximum willingness to pay is $20 (Q=0).
The area under the demand curve is consumer surplus =1/2*(20-0)*(20-0).
CS = $200.
2. Option B is correct.
The utility over an indifference curve remains the same.
3. Option C.
When more is produced than required, the marginal cost exceeds the price and the sellers lose out.
4. Elasticity = % change in quantity demanded/% change in price.Plugging in all the values,
0.4 = 5%/P%
P% = 5%/0.4
P% = 12.5%. The price needs to be INCREASED by 12.5%, so as to decrease demand by 5%.
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