Key to Success in Econ

Mary should decrease her reservation price for the house because there is only one proposition; on the other hand, this couple seems to be very interested by her house. However, the reservation price cannot decrease until $170.000, but it cannot reach the $215.000 as well.

1. The first chapter in the book is about the market and its inner workings. The book briefly explains the idea of supply and demand, in which the price of a certain good or service will reach the point where all the demand is equivalent to the supply. However, the value of something is not determined by its necessity, but its desire within society, as seen by the difference in cost between a diamond and life giving water. Markets operate as they do because people try to maximize the amount of utility for themselves. Nevertheless, a strict rationalism model cannot be used for predicting all the occurrences of a market because of the ever changing behavior of people; thus economists must take precautions against

$1,000 allocated equally between the two types of pizzas, and that the costs to make plain cheese pizza and

Question 31 In Bovania, cattle compose 48% of the consumer price index (CPI), housing composes 32%, and entertainment accounts for the remaining 20%. If, in a certain year, the price of cattle rises by 30% and the price of housing rises by 25%, then:

2. Refer to the above table to answer this question. Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1, what is the maximum quantity that Mia might purchase?

Scenario 3: The nation is currently experiencing a period of rising prices. Inflation is making consumer goods increasingly difficult to afford as wages have remained constant.

____ 16. If two goods are ____, then an increase in the price of one leads to ____ in the quantity demanded of the

"Suppose you own a McDonald’s franchise; a teenage cook makes ten hamburgers per hour for you, and each hamburger is sold for $2. Your hourly business revenue from hiring that cook is $20, i.e., price times the cook’s output. Suppose all other costs add up to $12 per hour of production, and the minimum wage you pay the cook is $5 per hour. Then your hourly profit from hiring that cook is $3 [$20 - $5 - $12]. Now suppose all costs a prices double, that is, a hamburger fetches $4, the minimum wage becomes $10, and other costs rise to $24.

Three reasons the aggregate-demand curve slopes downward are the wealth effect, the interest-rate effect, and the exchange rate effect. The wealth effect explains that when the price level decreases, each consumer is wealthier because the real value of his or her dollar has increased. Wealthier consumers spend more, increasing the demand for consumption goods and services. Conversely, if the price level rises, the real value of the dollar will decrease, effectively making consumers poorer. Poorer consumers will spend less on consumption, decreasing the demand for goods and services.

9. If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping, imposing a sales tax on the good will

|ECONOMIC |Inflation would increase the price of drinks and at the same time, consumers’ real disposable |

“As a consumer consumes more and more units of a specific commodity, the utility from the successiveunits goes on diminishing”.

The following graph demonstrate the demand curve of how many items of a product or service a consumer would like to purchase at different prices. Now by having the product at a lower price, the more a consumer is likely to buy. For that same reason it can be concluded that the price is one major factor of the product demand.

Suppose South Australian consumers’ average incomes increase from $3,000 to $3,400 per month, which then results in an increase in the quantity of smartphones demanded from 15,000 to18,500. You are required to do the following:

An example of share of consumer income devoted to a good is sugar versus a 20 lb. bag of Pedigree dog food. If the price on these items were increased by 15%, consumers would notice the price on the dog food before the sugar. Normally, the dog food costs approximately $15 and the bag of sugar normally costs $3. The dog food’s price would increase to $17.25, while the bag of sugar would only cost $3.45. Consumers would still purchase the sugar and would have no impact on the demand; however, consumers may begin looking for substitutes for the dog food, which will begin decreasing the company’s revenue.