# AB 224 Unit 4 Assignment

AB224 Unit 4 Assignment Template:

Name:

Course Number:

Section Number:

Unit Number:4

Date:

———————————- General Instructions for all Assignments———————————–

1. Unless specified differently by your course instructor, save this assignment template to your computer with the following file naming format:

Course number_section number_LAST_FIRST_ unit number

2. At the top of the template, insert the appropriate information: Your Name, Course Number, Section Number and Date

3. Insert your answers below, or in the appropriate space provided for in the question. Your answers should follow the APA format with citations to your sources and, at the bottom of your last page, a list of references. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style (double spaced, in Times New Roman, 12-point, black font). Respond to questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions.

4. Provide a list of references at the end of the last page of your assignment.

5. Upload the completed assignment to the appropriate dropbox.

6. Any questions about the assignment, or format questions, should be directed to your course instructor.

——————————————- Career Competencies —————————————–

In this assignment, you will engage in developing the following career competencies:

Analyzing Quantitative Data

Analyzing Qualitative Data

——————————————- Assignment ——————————————-

1. For each of the following situations, decide whether the bundle Lakshani is considering optimal or not. If it is not optimal, how could Lakshani improve her overall level of utility? That is, determine which good she should spend more on and which good should she spend less on. (Things to consider: Budget line and marginal utility per dollar.)

It means Lakshani’s budget line. The marginal utility per dollar for

1. Lakshani has \$200 to spend on sneakers and sweaters. Sneakers cost \$50 per pair, and sweaters cost \$20 each. She is thinking about buying 2 pairs of sneakers and 5 sweaters. She tells her friend that the additional utility she would get from the second pair of sneakers is the same as the additional utility she would get from the fifth sweater. (For this question, you have to consider MU/\$.  So, choose a number to represent MU.  The problem states that the utility for the 2nd pair of sneakers is the same as the utility for the 5th sweater.  Assign a random number to represent the MU and determine what the MU/\$ would be. This will enable you to determine if it is optimal or not.)

sneakers and for sweaters is not equal6. The marginal utility per pair of sneakers is

equal to her marginal utility per sweater. Since the sneakers cost \$50 and

sweaters only \$20 (sneakers are 2.5 times as expensive than sweaters),

Lakshani’s marginal utility per dollar spent on sweaters is 2.5 times greater than

her marginal utility per dollar spent on sneakers. She should improve her level of utility if she spent more money on sweaters and less on sneakers

b. Lakshani has \$5 to spend on pens and pencils. Each pen costs \$0.50 and each pencil costs \$0.10. She is thinking about buying 6 pens and 20 pencils. The last pen would add five times as much to her total utility as the last pencil.

This bundle is within Lakshani’s budget line. The marginal utility per pen is five

times as great as the marginal utility per pencil. However, pens are five times expensive as pencils, so her marginal utility per dollar spent on pens is

equal to her marginal utility per dollar spent on pencils. This means it is her optimal bundle

c. Lakshani has \$50 per season to spend on tickets to football games and tickets to soccer games. Each football ticket costs \$10 and each soccer ticket costs \$5. She is thinking about buying 3 football tickets and 2 soccer tickets. Her marginal utility from the third football ticket is twice as much as her marginal utility from the second soccer ticket.

A much as Laksani’s marginal utility per dollar spent on soccer tickets being equal to her marginal utility per dollar, spent on football tickets, this is not an optimal bundle.

It is not within her budget line. She could buy more of both goods and probably

Will. We need more information about her utility at other consumption bundle if indeed we would wish to have a precise answer on the number of

2. In the United States, 2007 was a bad year for growing wheat. As the wheat supply decreased, the price of wheat rose dramatically, leading to a lower quantity demanded (a movement along the demand curve). The accompanying table describes what happened to prices and the quantity of wheat demanded.

 2006 2007 Quantity demand (bushels) 2.2 billion 2.0 billion Average price (per bushel) \$3.42 \$4.26

a. Using the midpoint method, calculate the price elasticity of demand for winter wheat. (I’ve provided an example for you below.)

% of change in quantity demanded = = -9.52%

% of change in price= = 21.88%

The price elasticity of demand= = 0.44

So the demand is 0.44

b. What is the total revenue for U.S. wheat farmers in 2006 and 2007? (For each year.)

Total revenue for the wheat farmers in 2006 is 2.2b*3.42 =\$ 7.524b

while the revenue in 2007 is \$4.26*2.0b= \$ 8.52b

c. Did the bad harvest increase or decrease the total revenue of U.S. wheat farmers? How could you have predicted this from your answer to part a?

Bad harvest increased the total revenue of wheat.This could easily have been predicted by knowing that demand is inelastic, Using the calculations in part (a), we calculated the price elasticity of demand to be 0.44 for this case, the price effect of this is that quantity fall outweigh the increased price effect.The general effect is that there was an increase in total revenue.

3. A recent study determined the following elasticities for Volkswagen Beetles:

Price elasticity of demand = 2

Income elasticity of demand = 1.5

The supply of Beetles is elastic. Based on this information, are the following statements true or false?* Explain your reasoning.

It is true. Price elasticity of demand for Beetles is 2. A 1% increase in the price would reduce the quantity demanded by 2%. Therefore, a 10% increase in the price would reduce the quantity demanded by 20%.

1. A 10% increase in the price of a Beetle will reduce the quantity demanded by 20%.
2. First part of the statement is true. The income elasticity of demand for Beetles is positive. It means an increase in income will increase the demand for Beetles. The demand curve shifts to the right and the price and quantity of Beetles supplied both increase. The second part of the statement is false. Since both price and quantity increase. Regardless of the price elasticity of demand, total revenue will go up. This makes the statement is false.

1. An increase in consumer income will increase the price and quantity of Beetles sold. Since price elasticity of demand is greater than 1, total revenue will go down. (Please address both statements for part b. They may both be false, both be true, or one true and one false.)
2. ——————————————–

References:

Content Percent Possible Points Possible
Full assignment 100% 40

Overall Writing: 20% 8
correct coversheet information at the top of 1st page   2
correct citations   1
standard English no errors   2
At least ONE, or more, references   2

Answers: provides complete information demonstrating analysis and critical thinking: 80% 32
Individual Questions:
1. a. – Is it the best choice or should buy more of which good and less of which good (Sneakers/Sweaters)?   3
1. b. – Is it the best choice or should buy more of which good and less of which good (pens/pencils)?   2
1. c. – Is it the best choice or should buy more of which good and less of which good (football/soccer tickets)?   3
2. a. – What is price elasticity of demand for wheat?   4
2. b. – What is total revenue for wheat?   4
2. c. – Could change in revenue been predicted from elasticity? How?   6
3. a. – Supply of beetles is elastic. (true/false) Why?   4
3.b. – Will total revenue increase, or decrease??   6