# Microeconomics - Order number#E004397

Question 1

Suppose Jim and Joan receive great satisfaction from their consumption of cheesecake. Joan would be willing to purchase only one slice and would pay up to \$12 for it. Jim would be willing to pay \$18 for his first slice, \$14 for his second slice, and \$8 for his third slice. The current market price is \$8 per slice. Assume supply is perfectly elastic. a. How much total consumer surplus do Joan and Jim collectively receive from consuming cheesecake when it is priced at \$8 a slice? b. If a tax of \$6 is levied on each slice of cheesecake, what is the deadweight loss of the tax? how much tax revenue will be generated from sales to Jim and Joan? c. If a tax of 82 is levied on each slice of cheesecake, what is the deadweight loss of the tax?

Question 2 Needs Grading Jean-Pierre has preferences represented by the utility function U(x, y) = min {2x + y, x + 6y 1. If x is on the horizontal axis and y is on the vertical axis, a. What is the slope of his indifference curve at the point (4, 3)? b. If Px=3, Py=4, m=20, calculate the optimal consumption bundle.(Round to 2 decimal places) c. If Px=1, Py=8, m=20, calculate the optimal consumption bundle. (Round to 2 decimal places)

Question 3

Patience has the utility function U(c1; c2) = 4cl + 2'1c2. where cl is her consumption in period 1 and c2 is her consumption in period 2. She will earn 100 units of the consumption good in period 1 and 200 units of the consumption good in period 2. She can borrow or lend at an interest rate of 10%.

a. Write an equation that describes Patience's budget. (Round to 2 decimal places) b. If Patience neither borrows nor lends, what will be her marginal rate of substitution between current and future consumption? (Round to 2 decimal places) c. If Patience does the optimal amount of borrowing or saving, what will be the ratio of her period 2 consumption to her period 1 consumption?

Question 4

George's demand function for claret is q = .02m - 2p, where m is income and p is price. His income is \$8,000 and he initially had to pay a price of \$40 per bottle of claret. The price of claret rose to \$55. a. Compute the price elasticity of demand before the price change. (Round to 2 decimal places) b. What is the substitution effect?