Question

Suppose the marginal utilities from consuming good X and good Y are MUx M U x = 20 and MUy M U y = 30, respectively. And prices of good X and good Y are Px P x = $3 and Py P y = $4. Which of the following statements is true?

Question 28 options:

The consumer could increase utility by giving up 1 unit of good Y for 3/4 units of good X.

The consumer is receiving more marginal utility per dollar from good X than from good Y.

The consumer could increase utility by giving up 1 unit of good X for 3/4 units of good Y.

The consumer is maximizing utility.

Question 29 The market for onions is described by following demand and supply equations: Demand: QD = 40 − P Q D = 40 - P Supply: QS= −20 +2P Q S = - 20 + 2 P Suppose the government mandates a price of $10 per pound. Is the market in equilibrium?

Question 29 options: The market is not in equilibrium because at $10 per pound, quantity supplied is greater than quantity demanded.

The market is not in equilibrium because at $10 per pound, quantity supplied is less than quantity demanded.

The market is in equilibrium because at $10 per pound, quantity supplied is equal to quantity demanded.

The market is not in equilibrium because any price set by the government cannot be an equilibrium price.

Question 30

At the equilibrium price of $10, the elasticity of demand and supply are -0.8 and 1.20 respectively. If the government institutes a tax of $1 per unit, sellers will receive ________ and consumers will pay __________.

Question 30 options: $9.55; $10.55 $9.6; $10.6 $9.7; $10.7 $9.65; $10.65

Answer 1

28. The consumer could increase utility by giving up 1 unit of good X for 3/4 units of good Y.
(As price ratio = Px/Py = 30/40 = 3/4. So, utility can be increased by giving up 1 unit of X for 3/4 units of Y.)

29. The market is not in equilibrium because at $10 per pound, quantity supplied is less than quantity demanded.
(At P = 10; QD= 40 - 10 = 30; Qs = −20 +2P = −20 +2(10) = -10 + 20 = 0. So, Qs < QD)

30. $9.6; $10.6
(Burden on sellers = ed/(ed+es) = 0.8/(0.8+1.2) = 0.8/2 = 0.4
Burden on consumers = es/(ed+es) = 1.2/(0.8+1.2) = 1.2/2 = 0.6
So, sellers pay tax = 0.4*(1) = 0.4
Price received by sellers = 10 - 0.4 = 9.6
Price paid by buyers = 9.6 + 1 = 10.6)