8.The budget line begins on the Y axis at Y=100 units, and X=0 units. The budget
ID: 1197749 • Letter: 8
Question
8.The budget line begins on the Y axis at Y=100 units, and X=0 units. The budget line continues down toward the X axis with a slope of -2. At Y=50, the budget line slope changes to -1. This is consistent with a pricing strategy that involves a
A. Price of x reduction for large quantities purchased
B. Price of x increase for large quantities
C. A constant price of x for all quantities purchased
D. None of the above
13.
When a homeowner tries to sell his or her house, he or she is required to sign a disclosure agreement that details everything wrong with the house. This is to prevent:
A. The buyer from receiving consumer surplus
B. A positive substitution effect
C. Adverse selection
D. Economic profit from the sale of the house
15.
Suppose an individual's demand curve was given by P = 50 – 5Q. If price is $25, total consumer surplus would be approximately:
A. $63
B. $188
C. $125
D. $100
The main difference between economic profit and accounting profit is:
A. Economic profit only takes into account the cost of variable inputs
B. Accounting profit includes both explicit and implicit costs
C. Economic profit includes opportunity cost
D. Both are the same
A. Price of x reduction for large quantities purchased
B. Price of x increase for large quantities
C. A constant price of x for all quantities purchased
D. None of the above
13.
When a homeowner tries to sell his or her house, he or she is required to sign a disclosure agreement that details everything wrong with the house. This is to prevent:
A. The buyer from receiving consumer surplus
B. A positive substitution effect
C. Adverse selection
D. Economic profit from the sale of the house
15.
Suppose an individual's demand curve was given by P = 50 – 5Q. If price is $25, total consumer surplus would be approximately:
A. $63
B. $188
C. $125
D. $100
The main difference between economic profit and accounting profit is:
A. Economic profit only takes into account the cost of variable inputs
B. Accounting profit includes both explicit and implicit costs
C. Economic profit includes opportunity cost
D. Both are the same
Explanation / Answer
Q.8. At slope of -2 it refers that to gain an unit of X we have to sacrifice 2 units of Y. But until the point of Y becomes 50. Then after slope changes as purchase of x increases in quantities. Now having a slope of -1 means we have to give up 1 unit of y to gain 1 more unit of x. Now it is clear that we can purchase more of x by sacrific less of y. That means price ox has reduced if we increase our purchase of x.
Hence correct answer is Option A Price of x reduction for large quantities purchased".
Q.15. Demand: P = 50 – 5Q. If price is $25, then
25 = 50-5Q
Q=25/5 = 5
Consumer surplus = 1/2 * Q * (maximum price consumer willing to pay - actual price)
maximum price consumer willing to pay : = 50 – 5(1) = 50
Consumer surplus = 1/2 * 5 * (50-25) = 62.5
Option A is correct.
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