<p>Anyone remember the exact question for the normal or inferior good?</p>
<p>When you interpret income elasticity, if the value is negative, it is an inferior good. If income elasticity is between 0 and 1, it is a normal good, and if greater than 1, it is a luxury good.</p>
<p>Also, free trade maximizes overall surplus - although domestic suppliers might be hurt, it’s more efficient to allow foreign suppliers to supply at a lower price if it’s available. Any form of tariff decreases efficiency.</p>
<p>I recall something like this: the income elasticity of bagels is -2.x, is it a normal or inferior good. I put inferior since its negative, obviously,</p>
<p>Income elasticity is % change in quantity demanded over % change in income. Since it’s negative it’s an inferior good.</p>
<p>Does anyone recall what question one was? I remember doing a monopoly graph & got easy points for that…but i totally guessed since I didn’t learn about what happens after a lump or per-unit tax/subsidy does to the graph. i put no change for 2 of the parts.
oh…and for question one part b (i think) does the total revenue increase, decrease, or remains contant? i put increased…& i dont remember the explanation of why i put that.</p>
<p>Wow I’m dumb, I thought it said elasticity of demand. I’m a little worried now haha</p>
<p>You guys are wrong. The surplus question said something along the line of: what tariff price maximizes DOMESTIC consumer surplus and DOMESTIC supplier surplus combined. The answer was $3 because, although consumer surplus falls, producer surplus makes up for it and increases the total more.</p>
<p>No, it doesn’t…CS increases more than PS does at 0, because Consumers consume cheap imports…they’re still domestic, and so are still counted.</p>
<p>Nah, the full name of it is income elasticity in demand and the formula is basically the same for other elasticity measurements, the difference being the denominator is income and not price.</p>
<p>mukkumukku,</p>
<p>It’s the train company that’s losing money and the government subsidises it</p>
<p>Per unit subsidy decreases MC, so they can produce more, increasing CS(since it’s closer to Q_e)</p>
<p>Lump sum would only change ATC, and less as output increases; this would reduce losses, but wouldn’t decrease DW loss(which is bounded by MR, MC, and Demand curves) unless it decreases ATC to below price</p>
<p>If you increase price, revenue decreases, since quantity decreases, and Marginal revenue is positive on that part of the curve.</p>
<p>I think the question regarding demand in #2 is no change. Note that the question didn’t refer to a change in QUANTITY demanded, but rather demand in general.
Thus, with a shift in supply to the left (due to increase in cost of a factor of production), the demand curve itself does not change; rather we see a shift ALONG the curve.</p>
<p>Also regarding #3’s question about tariff for max total consumer and producer surplus, isn’t the max always at equilibrium quantity/price? That’s what it says in my microecon book, unless it can’t be applied to this problem.</p>
<p>^That’s only in a closed system; in the given problem, consumers gain more than producers lose with a price lower than equilibrium since there is an infinite supply. In fact, it’s best if the tariff is -2, so the consumers get free sugar.</p>
<p>I believe garfieldliker is absolutely right in post #71 with the answers. Also, to further explain that question, total revenue decreases with an increase in price because when MR > 1, demand is elastic. And since the monopoly always operates where MR = MC where MC is always >0, monopolies always operate on the elastic portion.</p>
<p>for #2. actually the demand decreases because you have to look at the Mu/P = Mu2/P2 equation. if the price o the bagel goes up due to price increase in wheat, than in order for that equation to be equal, the Marginal Utility of the bagels has to increase, which means that Theresa has to consume less bagels to have a higher Marginal utility.</p>
<p>I thought #3 was tariff of $3 because when the world price equals to domestic equilibrium, then the Cs and PS are both maximized.</p>
<p>I agree that was the easiest Micro ever.</p>
<p>Yeah but isn’t that too complicated? If they wanted such a response I bet they would have said explain. I think it was just that a factor of production affects supply, not demand.</p>
<p>Looking at all these responses makes me worry now…</p>
<p>Did you guys get $23 for consumer surplus and $8 for the tax revenue for question 3?</p>