Graded Homework

Unit 5 Assignment: Elasticity of
Demand and Consumer Surplus

Name:

Course Number and Section: AB224–0X

Date:

General Instructions
for all Assignments

1.
Unless specified differently by your course instructor, save this assignment
template to your computer with the following file naming format: Course number_section
number_Last_First_unit number

2.
At the top of the template, insert the appropriate information: Your Name,
Course Number and Section, and the Date

3.
Insert your answers below, or in the appropriate space provided for in the
question. Your answers should follow APA format with citations to your sources
and, at the bottom of your last page, a list of references. Your answers should
also be in Standard English with correct spelling, punctuation, grammar, and
style (double spaced, in Times New Roman, 12–point, and black
font). Respond to questions in a thorough manner, providing specific examples
of concepts, topics, definitions, and other elements asked for in the
questions.

4.
Upload the completed Assignment to the appropriate Dropbox.

5.
Any questions about the Assignment, or format questions, should be directed to
your course instructor.

Assignment

In this Assignment, you will calculate the
Price Elasticity of Demand, demonstrate a firm understanding of consumer
choices based on differing marginal utilities, consumer surplus, and how the
buying choice and amount of consumer surplus changes based on various pricing
schemes.

In
this Assignment, you will be assessed on the following outcome:

AB224-5:Demonstrate how the concept of utility affects purchasing
decisions by individuals and consumer surplus.

Questions

1. The
accompanying table shows the price and monthly demand for barrels of gosum
berries inGondwanaland.

Price of gosum berries per barrel	Native Demand for gosum berries per month
$100	0
$90	100
$80	200
$70	300
$60	400
$50	500
$40	600
$30	700
$20	800
$10	900
$0	1000

1. Using the midpoint method (show your
   work), calculate the price elasticity of demand when the price of barrel
   of gosum berries rises from $10 to $20. What does this estimate imply
   about the price elasticity of demand of gosum berries?

1. Using the midpoint method (show your
   work), calculate the price elasticity of demand when the price of barrel
   of gosum berries rises from $70 to $80. What does this estimate imply
   about the price elasticity of demand of gosum berries?

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

2. Matilda is
downloading music and videos from an online site. She is currently buying three
music downloads that cost $3 each and two video downloads that also cost $3
each. The table below indicates what she reports as the marginal utility of the
last music download and of the last video download in this combination of
purchases.

	Quantity	Price per Download	MU per download
Music downloads	3	$3	60
Video downloads	2	$3	45

a. A consumer maximizes utility when
the last dollar spent on any good generates the same satisfaction as the last
dollar spent on every other good. Is Matilda maximizing her utility? Explain
your answer.

.

b. Should Matilda consume one more
video download, to move her closer to her optimum utility?Explain your answer.

c. Should Matilda consume one less music download and one more video download, to move her closer
to her optimum utility?Explain your answer.

d. Should Matilda consume one more
music download, to move her closer to her optimum utility?Explain your answer.

3. Brandon
and his family often rent movies from the new internet movie streaming service,
Xanadu. The table below shows Brandon’s demand schedule for eight movie rentals
that Brandon’s family is interested in watching.

Number of internet video rentals	Willingness to pay each rental
1st movie rental	$7
2nd movie rental	$6
3rd movie rental	$5
4th movie rental	$4
5th movie rental	$3
6th movie rental	$2
7th movie rental	$1
8th movie rental	$0

a.
If the price of the price of each movie rental
from Xanadu is $3, how many movie rentals will Brandon buy and how much
consumer surplus does Brandon receive? Explain your answer.

b.
If the price of the price
of each movie rental from Xanadu is $5, how many movie rentals will Brandon buy
and how much consumer surplus does Brandon receive? Explain your answer.

c. If
the Xanadu online service offers as many movie rentals as the customer wants to
download, all for on-time yearly subscription fee of $25.00, how many movie
rentals will Brandon download and how much consumer surplus will Brandon
receive? Explain your answer.

d. If
the Xanadu online service offers as many movie rentals as the customer wants to
download, all for on-time yearly subscription fee of $35.00, how many movie
rentals will Brandon download and how much consumer surplus will Brandon
receive? Explain your answer.

e.
If the Xanadu’s market research showed that
Brandon’s demand represented what most of Xanadu’s customers wanted, what would
be the most that Xanadu could charge as a one-time annual fee for all the downloads
that the customer wanted?

4. 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?

——————————————–