1. Consider the following elasticity information for three goods.
Elasticity | Good A | Good B | Good C |
Own-Price | -0.2 | -3.0 | -1.5 |
Income | -0.5 | 2.0 | 0.5 |
Cross-price with A | .2 | -0.1 | |
Cross-price with B | 0.2 | -0.3 | |
Cross-price with C | -0.1 | -0.3 |
a. What would happen to desired purchases of good A when prices
rise by 20%? What would happen in the market for good C when good
A's price changes?
b. Which goods are normal? Which are inferior? Why?
c. Which pairs of goods are complements? Which are substitutes?
Why?
d. For which goods would price increases result in lower total
expenditures on that good? Why?
2. Consider the following production data
Labor Hrs | Output (lbs |
1 | 2 |
2 | 5 |
3 | 9 |
4 | 14 |
5 | 17 |
6 | 19 |
a. Calculate the marginal product of labor for all hours of
labor.
b. For which values of labor hours do you see declining marginal
product of labor?
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