Econ203 Problem Set3

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Economics 203: Intermediate Microeconomics I Instructor: Dr. Donna Feir University of Victoria Fall 2013 Problem Set #3 Coverage: Chapter 5 “Applications of Rational Choice and Demand Theories,” and Chapter 16.1 ”General Equilibrium.” All page and question references refer to the Frank and Parker text. Recommended Completion Date: October 15, 2013. Question 1: Page 159 in Old Text and Page 172 in New Text, Problem 2. Question 2: A consumer is originally buying bundle C on the diagram below. Suppose that the government places a tax on the purchases of gasoline, but also give out a lump sum rebate. For this consumer, the impact of the policy makes bundle C just affordable. If this consumer has the typical shape to her indifference curves, will she still purchase bundle C? Briefly explain. Question 3: Betty monthly demand curve for litres of water is illustrated in the graph below. She pays a flat fee of $50 per month for water. Once her fee is paid, Betty can consume any quantity she wishes for no additional charge. How much water does she consume each month? What is Betty's consumer surplus, given that she only pays the Flat fee of $50 per month? Economics 203: Intermediate Microeconomics I Instructor: Dr. Donna Feir University of Victoria Fall 2013 Question 4: Page 528‐529 in Old Text and Page 582 in New Text, Problem 1, 2, and 3 (they go together).. Question 5: Page 528‐529 in Old Text and Page 582 in New Text, Problem 6 – Identify the entire contract curve as well as the Core. Question 6: Sketch a typical consumption contract curve in an Edgeworth box for Ada (A) and Bob (B). The two products are apples and tents. Identify two consumption baskets where A and B are off the contract curve. Label the first point (a), where A values apples much more than B does; and label the second point (b), where A values apples much less than B does.

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