Problem Set # 1
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Problem Set # 1
Econ 281
Due Date: 11:59 pm, Oct. 2, 2023
Problem 1 (20 Marks)
(a) Melissa considers tennis to be kind of meh – she doesn’t get any satisfaction from playing it, but it also isn’t as though she actively dislikes it either. On the other hand, she loves playing pickleball!
(b) Carlos loves to binge watch shows on Amazon Prime. His two favourites right now are “Rings of Power” and “Wheel of Time.” He never stops enjoying watching either show. But with each individual show, each additional episode he watches gives him less enjoyment than the episode before.
(c) Andrea’s two favourite movies right now are “Barbie” and “Oppenheimer.” She watches them over and over again – they never get old! However, she thinks the only way worth watching them is back-to-back – watching one without the other seems pointless to her.
(d) Ben is a huge fan of Taylor Swift’s “1989” album – every minute spent listen ing to it is more enjoyable than the last! He also feels the exact same way about the “Hamilton” soundtrack.
Problem 2 (22 Marks)
(a) Suppose that the market for weighted blankets is in equilibrium when the price of a weighted blanket is $80. At that price, 1000 weighted blankets are sold, the price elasticity of supply is 4, and the price elasticity of demand is −8. Find and graph the supply and demand curves (Note: assume both are linear)
(b) Suppose now that a major advance in blanket weighting technology is made, which greatly eases the weighted blanket production process. As a result, at every price level producers now supply 1000 more weighted blankets than they did previously. Find the new equilibrium price and quantity, as well as the price elasticities of both supply and demand.
Problem 3 (36 Marks)
Each cookie costs $2.50 and each concert ticket costs $20.
(a) How much money would Sam need to achieve utility = 10,000?
(b) From now on, assume Sam has $1000 to spend. How many cookies and concert tickets will Sam consume?
(c) Suppose cookies cost $4 each instead of $2.50. How many cookies and concert tickets will Sam consume?
(d) Find the substitution and income effects for the change from part (b) to (c).
(e) Find the Compensating and Equivalent Variations for the change from part(b) to (c).
Problem 4 (22 Marks)
They each have $200 to spend.
(a) On separate graphs, plot Maja and Gary’s demand curves for cashew milk, assuming the price of avocados is constant at $2.
2023-09-30