ma your claim by drawing ol thé y-axis, and employment on the x-axis. Let Wo and

Question

ma your claim by drawing ol thé y-axis, and employment on the x-axis. Let Wo and Eo be binal wage and employment demanded in the market, and label Wi and E1 as the nevw and employment demanded when the government sets the artificial wage Wi that Wi> Wo 13. Suppose a yogurt shop sells two sizes of frozen yogurts, a small (4 oz.) frozen yogurt and a dum (8 oz.) frozen yogurt. Assume the yogurt shop sells only smalls and mediums and charges the for a small is $3, and your WTP for a medium is $5. (a) Why isn't your WTP for a medium twice as much as your WTP for a small? (b) Using the table below, assuming you can only buy one sized yogurt (none, small, or same price per oz., .e. Soz is always twice as expensive as 4oz. Suppose your WTP medium), determine your optimal purchase decision at each per oz. price. Assume yoru the purchase so long as CS 2 0. At what price per oz. do you switch to buying the medium. Price Medium Price Small o2 $0.80 $0.75 $0.70 $0.60 $0.50 $0.40 $3.20 $3 $2.80 $2.40 $2.00 $1.60 $6.40 86 $5.60 84.80 $4.00 $3.20 (c) Could you have found the answer in part (b) above by doing marginal decision making? Show how.

Explanation / Answer

Because want for a good is satiate. As we consume more of a good our want for that decreases and so does marginal willingness to pay

B At o. 75 we switch to medium since WTP is less than price 3 beyond it

C yes because 0.75(3)=2.25 is less than marginal willingness to pay. We need to equate willingness to pay to price and in thus way equilibrium will be reached

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