# Unit 5 Assignment Microeconomics

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BU224  Unit  5  Assignment  Template:     Name: – Course Number: – Section Number: – Unit Number: – 5 Date: –

——————————————- Career Competencies —————————————–

In this assignment, you will engage in developing the following career competencies: Analyzing Quantitative Data Analyzing Qualitative Data

——————————————- Assignment ——————————————-

1. The accompanying table shows the price and yearly quantity sold of ice cream cones on Sidfield Island.

Price of Ice Cream Cones

Quantity of Ice Cream Cones Demanded

\$1 3000 \$2 2400 \$3 1600 \$4 800

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a. Using the midpoint method (show your work), calculate the price elasticity of demand when the price of an ice cream cone rises from \$1 to \$2. What does this estimate imply about the price elasticity of demand for ice cream cones?

For this one, remember that the formula for price elasticity of demand is the percent change in quantity over the percent change in price. This is on p. 168 in your book. Example: If the price were to rise from \$2 to \$3, the percent change in price would be: (\$3-\$2)/[(\$2+\$3)]/2 x 100 = \$1/\$2.50 x 100 = 0.4 x 100 = 40% Notice that what we are doing is taking the change and dividing by the average of the two prices. You will have to do the same thing for quantity and then divide the percent change in quantity by the percent change in price.

b. Using the midpoint method (show your work), calculate the price elasticity of demand

when the price of an ice cream cone rises from \$3 to \$4. What does this estimate imply about the price elasticity of demand for ice cream cones?

c. Notice that the estimates from (a) and (b) above are different. Why do price elasticity of demand estimates change along the demand curve?

See pp. 164 and 165 in your textbook.

2. Newspaper vending machines are designed so that once you have paid for one paper; you have access to all the papers in the machine and could take multiple papers at a time. However, other vending machines dispense only one item (the item you bought). You do not have access to all the goods (sodas, candy, snacks, etc.) at one time. Using the concept of marginal utility, explain why these vending machines differ? What is the marginal utility of a second newspaper? What’s the marginal utility of a second candy bar? If a candy vending machine were to allow people to open the whole machine when they put in their money, would they take more than one?

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3. Amy is shopping at a dollar store. She is currently buying 5 bracelets that cost \$1 each and 4 sodas that cost \$1 each. The table below indicates the marginal utility she obtains when she purchases this combination. Quantity Price per Unit MU per unit

Bracelets 5 \$1 30

Sodas 4 \$1 40