Unit 4 Assignment: Elasticity of Demand
Name:
Course Number and Section:
Date:
General Instructions:
Course number_section number_last name_first name_unit number
Example: BU224_Section02_David_Alex_Unit1
Assignment:
In this assignment, you will focus on marginal utility, price elasticity of demand, and understanding the difference between price elasticity of demand and income elasticity of demand.
You subconsciously assign “scores” to what you are considering purchasing, based on the expected level of satisfaction (marginal utility) with that purchase. When making simultaneous pairs of purchases, again, you subconsciously compare the amount of satisfaction (marginal utility) that you will receive from the pair of purchases. To decide on the ideal combination of these two purchases, you expect that the last dollar you spend on each of the items will give us the same satisfaction per dollar (marginal utility per dollar). Further, you know that the MORE of an item that you get, the next one you get will give you LESS satisfaction (marginal utility) than the last one gave you (the law of diminishing marginal utility). Using what you have learned about marginal utility and marginal utility per dollar, answer the following questions.
Questions
Below is the university student’s completed experiment tally sheet of Jane’s marginal utility “scores” and the calculation of her marginal utility per dollar, given that each sandwich costs $4.00, and each order of fries costs $2.00. Her budget is $20.
The student filled in the shaded cells based on Jane’s responses, then computed the values in the remaining cells. Using this information, answer the following questions.
Student’s completed experiment tally sheet. Available budget is $20.
Order of | mu (score) from 1 to 100 | Price of each
$4.00 |
Money spent on |
Order of | mu (score) from 1 to 100 | Price of each
$2.00 |
Money spent on |
Total Money Spent |
Total Budget Remaining |
Chicken Sandwich | mu | mu/$ | Chicken Sandwich | Fries | mu | mu/$ | Fries | ||
1st | 100 | 25 | $4.00 | 1st | 50 | 25 | $2.00 | $6.00 | $14.00 |
2nd | 72 | 18 | $4.00 | 2nd | 20 | 10 | $2.00 | $12.00 | $8.00 |
3rd | 60 | 15 | $4.00 | 3rd | 6 | 3 | $2.00 | $18.00 | $2.00 |
4th | 4th | ||||||||
Utility | 232 | Utility | 76 |
Total spent on chicken sandwiches: $12
Total spent on fries: $6.00
Total money spent: $18.00
Total budget remaining: $2.00
Marginal utility per dollar for chicken sandwiches of the last item purchased: 15 mu/$
Marginal utility per dollar for fries of the last item purchased: 3 mu/$
Total utility for both: 308
(Enter your response here.)
(Enter your response here.)
(Enter your response here.)
(Enter your response here.)
Then the growers were plagued with a gosum berry bug infestation that reduced output, causing production to fall to only 600 barrels. This resulted in a price increase to $84 per barrel. The following table shows the chairman’s report:
Month | Monthly barrels of gosum berries demanded | Price per barrel |
June | 700 | $70 |
July | 600 | $84 |
(Enter your response here.)
(Enter your response here.)
Month | Monthly barrels of gosum berries demanded | Price per barrel | Monthly total revenue
(Enter Totals Below) |
June | 700 | $70 | (Enter monthly total revenue here) |
July | 600 | $84 | (Enter monthly total revenue here) |
Change in monthly total revenue:
(Enter change in monthly total revenue here.) |
(Enter your response here.)
(Enter your response here.)
(Enter your response here.)
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