Problem Set #2

Score your own Practice FRQs

FRQ #1: 10 Points Total

FRQ #1 10 Point Total 2point Drawing and labeling a supply and demand graph with equilibrium price and quantity 2point (a) Drawing and labeling a decrease (leftward shift) in supply 2point (b) Drawing and labeling an increase (rightward shift) in demand 2point (c.i) Price increases 2point (c.ii) Quantity is indeterminate

FRQ #2: 10 Points Total

10 Point Total 1point (A) Drawing and labeling an increase (rightward shift) in supply. 1point Stating that price decreased and quantity increased. 2point (B) Price Floor (line) drawn above equilibrium 1point (B.i) Quantity demanded decreases 1point (B.ii) Quantity supplied increases 2point (B.iii) Consumers surplus decreases 1point (C.i) Price decreased after 1point (C.ii) Qd increased, Qs decreased

Instructions Put away you pen and pencils Put your name on the bottom of the page. We will grade questions 1, 2, 4, and 6 After grading each question, write in their score in the blank. ex: ( ____/5) Follow the directions explicitly!

1. Key Concepts 5 Points Each

1a. Laws of Demand and Supply 5 Point Total 1 Points- Correct definition of Law of Demand (Inverse relationship between price and QUANTITY demanded) 1 Points- Example of Law of Demand 1 Points- Correct definition of Law of Supply (Direct relationship between price and QUANTITY supplied) 1 Points- Example of Law of Supply 1 Points- Clarity of examples

1b. Laws of Dim. Marg. Utility 5 Point Total 2 Points- Correct definition of the Law of Diminishing Marginal Utility (As you consume more of any good, the additional satisfaction from each new unit will eventually start to decrease) 2 Points- Example of the Law 1 Points- Clarity of example

1c. Normal and Inferior 5 Point Total 1 Points- Correct definition of normal good (when income increased, demand increases) 1 Points- Example of normal good 1 Points- Correct definition of inferior good (when income increased, demand decreases) 1 Points- Example of inferior good 1 Points- Clarity of examples

1d. Consumers and Producers Surplus 5 Point Total 1 Points- Correct definition of Consumers Surplus (difference between the amount a buyer is willing to pay and the price they do pay) 1 Points- Example of CS 1 Points- Correct definition of Producers Surplus (difference between the price and the sellers minimum price) 1 Points- Example of PS 1 Points- Clarity of examples ?

2a. S&D Notesheet 5 Points Total

(exclude the second S&D graph on the back) 2a. Notesheet 5 Point Total Note sheet: Demand and Supply 5 points if completed entirely. NO blanks. (exclude the second S&D graph on the back) 4 points if one graph or section blank 3 points if two sections blank 2 points if three sections blank 1 point if four sections bank

2b. S&D Practice Sheet 15 Points Total

2a. Practice Sheet 15 Point Total 1 point- for EACH problem correctly analyzed and labeled. (14 points) Don’t worry about the shifter. 1 point- if every problem is attempted. No Blanks. Before grading, quickly check the labeling of each graph. If any curve is not labeled OR if Pe, Qe, P1 or Q1 are missing mark the answer incorrect.

2a. Practice Sheet 1 Point Each (circle their mistake) D decrease, P and Q decrease S decrease, P increase and Q decrease D increase, P and Q increase S increase, P decrease and Q increase No shift, surplus, P increase, Qd dec. Qs inc. No shift, Ceiling below eq, P dec. Qd inc. Qs dec S inc AND D inc, P Indeterminate and Q inc

4b. FRQ: 10 Points Total

4b. FRQ 10 Point Total (Graphs must be correctly labeled to earn point) 1 point- increase/rightward shift in supply for laptops (Must have Graph) 1 point- i. decreased price for laptops 1 point-ii. increased quantity (output) for laptops 1 point- iii. TR increases for laptops 1 point- decrease/leftward shift in demand for desktops (Must have Graph) 1 point- iv. decreasing price for desktops 1 point- v. decrease quantity for desktops 1 point- increase/rightward shift in demand for DVD burners (Must have Graph) 1 point- vi. increase in price for DVD burners 1 point- vii. increase quantity for DVD burners

Question #6: 10 Points Total

Question #6 a. 4 Point Total 1 Points- Correct Marginal Utility for CDs 1 Points- Correct Marginal Utility for DVDs 1 Points- Correct Marginal Utility per $ for CDs 1 Points- Correct Marginal Utility per $ for DVDs

Question #6 b. 3 Point Total 1 Point- for identifying the correct utility maximizing combination as 2 CDs and 4 DVDs 2 Points- Explanation- To find the utility maximizing combination first you must calculate per dollar (MU/P). (1 point) You continue buying the good with the highest marginal utility per dollar until you reach the income constraint of $100. (1 point)

Question #6 ? c. 3 Point Total 1 Point- for identifying the correct utility maximizing combination as 3 CDs and 5 DVDs 2 Points- Explanation- With an additional $30 you should buy one more CD and one more DVD. (1 point) You continue buying the good with the highest marginal utility per dollar until you reach the income constraint of $130. (1 point) ?

2a. Practice Sheet 1 Point Each (circle their mistake) D decrease, P and Q decrease S decrease, P increase and Q decrease D increase, P and Q increase S increase, P decrease and Q increase No shift, surplus, P increase and Q decrease No shift, Ceiling below eq, P dec and Q dec S inc AND D inc, P Indeterminate and Q inc

4b. FRQ 10 Point Total (Graphs must be correctly labeled to earn point) 1 point- increase/rightward shift in supply for laptops (Must have Graph) 1 point-i. decreased price for laptops 1 point- ii. increased quantity (output) for laptops 1 point- iii. TR increases for laptops 1 point- decrease/leftward shift in demand for desktops (Must have Graph) 1 point- iv. decreasing price for desktops 1 point- v. decrease quantity for desktops 1 point- increase/rightward shift in demand for DVD burners (Must have Graph) 1 point- vi. increase in price for DVD burners 1 point- vii. increase quantity for DVD burners