Page 569 - Krugmans Economics for AP Text Book_Neat

Section 9 Summary

imposition of the tax reduced consumer surplus? By how Suppose Brenda knows she will consume 2 cups of coffee
much has it reduced producer surplus? for sure. However, she can choose to consume different
c. How much tax revenue does Collegetown earn from this tax? quantities of bagels: she can choose either 0, 1, 2, 3, or
4 bagels.
d.Calculate the deadweight loss from this tax.
a. Calculate Brenda’s marginal utility from bagels as she
13. The state needs to raise money, and the governor has a choice goes from consuming 0 bagel to 1 bagel, from 1 bagel to
of imposing an excise tax of the same amount on one of two 2 bagels, from 2 bagels to 3 bagels, and from 3 bagels to
previously untaxed goods: either restaurant meals or gasoline. 4 bagels.
Both the demand for and the supply of restaurant meals are b.Draw Brenda’s marginal utility curve of bagels. Does
more elastic than the demand for and the supply of gasoline. If Brenda have increasing, diminishing, or constant marginal
the governor wants to minimize the deadweight loss caused by utility of bagels?
the tax, which good should be taxed? For each good, draw a di-
agram that illustrates the deadweight loss from taxation. 17. Bernie loves notebooks and Beyoncé CDs. The accompany-
ing table shows the utility Bernie receives from each
14. For each of the following situations, decide whether Al has in- product.
creasing, constant, or diminishing marginal utility.
a. The more economics classes Al takes, the more he enjoys
the subject. And the more classes he takes, the easier each Utility from Utility from
one gets, making him enjoy each additional class even more Quantity of notebooks Quantity of CDs
than the one before. notebooks (utils) CDs (utils)
b.Al likes loud music. In fact, according to him, “the louder, 0 0 0 0
the better.” Each time he turns the volume up a notch, he
2 70 1 80
adds 5 utils to his total utility.
4 130 2 150
c. Al enjoys watching reruns of the old sitcom Friends. He
6 180 3 210
claims that these episodes are always funny, but he does
admit that the more times he sees an episode, the less funny 8 220 4 260
it gets. 10 250 5 300
d.Al loves toasted marshmallows. The more he eats, however,
the fuller he gets and the less he enjoys each additional
marshmallow. And there is a point at which he becomes sa-
The price of a notebook is $5, the price of a CD is $10, and
tiated: beyond that point, more marshmallows actually
Bernie has $50 of income to spend.
make him feel worse rather than better.
a. Which consumption bundles of notebooks and CDs can
15. Use the concept of marginal utility to explain the following: Bernie consume if he spends all his income? Illustrate
Newspaper vending machines are designed so that once you Bernie’s budget line with a diagram, putting notebooks on
have paid for one paper, you could take more than one paper the horizontal axis and CDs on the vertical axis.
at a time. But soda vending machines, once you have paid for b.Calculate the marginal utility of each notebook and the
one soda, dispense only one soda at a time. marginal utility of each CD. Then calculate the marginal
16. Brenda likes to have bagels and coffee for breakfast. The ac- utility per dollar spent on notebooks and the marginal util-
companying table shows Brenda’s total utility from various ity per dollar spent on CDs.
consumption bundles of bagels and coffee. c. Draw a diagram like Figure 51.4 in which both the marginal
utility per dollar spent on notebooks and the marginal util-
Consumption bundle ity per dollar spent on CDs are illustrated. Using this dia-
Quantity of Quantity of Total utility gram and the optimal consumption rule, predict which
bagels coffee (cups) (utils) bundle—from all the bundles on his budget line—Bernie
will choose.
0 0 0
18. For each of the following situations, decide whether the bun-
0 2 28
dle Lakshani is considering is optimal or not. If it is not opti-
0 4 40 mal, how could Lakshani improve her overall level of utility?
1 2 48 That is, determine which good she should spend more on and
1 3 54 which good she should spend less on.
2 0 28 a. Lakshani has $200 to spend on sneakers and sweaters.
Sneakers cost $50 per pair, and sweaters cost $20 each.
2 2 56
She is thinking about buying 2 pairs of sneakers and 5
3 1 54 sweaters. She tells her friend that the additional utility
3 2 62 she would get from the second pair of sneakers is the
4 0 40 same as the additional utility she would get from the
fifth sweater.
4 2 66

Summary 527