TPS7

.pdf

School

Pennsylvania State University *

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Course

102

Subject

Economics

Date

Apr 3, 2024

Type

pdf

Pages

1

Uploaded by CorporalSteelFrog24 on coursehero.com

ECON102 TPS 7 Name: Email ID: @psu.edu Name: Email ID: @psu.edu Name: Email ID: @psu.edu You go to an ice cream shop where you are given a cup of ice cream, but must pay for toppings. You can really load up on toppings if you get multiple orders of them. The table below shows your marginal utility for the number of sprinkle toppings and chocolate toppings you get. Sprinkles cost $0.50 per order and chocolate costs $1.50 per order. If you have a $8.50 gift card that must be spent during this visit, how many of each topping would you get? What is your total utility? Quantity Marginal Utility of Sprinkles Marginal Utility of Chocolate 1 12 33 2 8 24 3 6 15 4 4 6 5 2 3 6 1 0 1 Toppings # orders of sprinkles = , # orders of chocolate = 2 Utility total utility = 3 Price Change Now imagine that the price of sprinkles rises to $1.00. The income effect says buy sprinkles and chocolate. The substitution effect says buy sprinkles and chocolate. What’s the new optimum bundle? orders of sprinkles and orders of chocolate What was bigger, the income effect or the substitution effect? 4 Elasticity Example 2 Give an example of a good with inelastic supply and elastic demand. Tell why you think this is true: 5 Multiple Choice If it’s been a month since you changed prices at Chipotle and you discover that price elasticity of demand has been 0.9 since the change, which of the following values could you expect for price elasticity of demand in 8 months from now? a)0.1, b)0.8, c)0.9, d)1.2, e)9
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