Essay Examination 2
 
These questions are from the test bank. An "A" answer requires at
least three or four intelligent sentences. Some questions may require
more sentences if they have multiple parts.  
Lecture 6  Elasticities and Welfare  
1. Please define the following terms.
2. What do the following numbers mean. Write a sentence explaining how elasticity explains the relationship between the market price and market quantity.
3. What is the difference in elasticity for demand functions that are linear and nonlinear?
4. Please draw a linear demand function for the Apple market. Then label each region on the demand function in terms of elasticity. 5. (20 points) Please draw a linear demand function for the Apple market. Then below the graph for the demand, please graph the corresponding total revenue function.
6. The linear demand function has two exceptions or special cases. Please graph and explain what these special cases are. 7. Please draw a nonlinear demand function and select two points on the function. Explain how a price change changes the revenue a firm receives. You are comparing two regions on the graph. 8. You have the following price elasticities of demand. Explain how firms could increase their revenue by a corresponding price strategy.
9. Please define the income elasticity of demand.
10. You have the following income elasticities of demand. Please explain what these elasticities mean.
11. Please define the cross price elasticity of demand.
12. You have the following cross price elasticities of demand. Please explain what these elasticities mean.
13. What is the difference between the short run and long run?
 
Lecture 7  The Theory of Consumer Behavior  
14. Please define and show on a graph the following terms.
15. Please draw the market for breakfast cereals. The Food and Drug Administration regulates how many insect parts that end up in breakfast cereals. What happens to the market if the government agency relaxes this restriction and allows more bug parts to end up in the cereals? What happens to social welfare? 16. (20 points) Please graph the breakfast cereal market. With no taxes on the market, the market price is $3.
17. (20 points) Please graph the beef market. With no taxes on the market, the market price is $5 per kilogram.
18. Economists view a consumer as an optimization problem. Please explain this optimization problem? 19. Which factors influence a consumer’s preferences? 20. What is the Law of Diminishing Marginal Utility? 21. Please explain the equation below:
22. What is the waterdiamond paradox? In your discussion, include the equation for marginal utilities and prices.  
Lectures 8  Production Costs  
23. Please define the following concepts.
24. Please define the following costs. Also give an example of each.
25. What is the difference between accounting profit and economic profit? Which profit is always larger?
26. Please explain and graph the following cost functions. For the average cost functions, you may give the formula in lieu of a written explanation.
27. Please graph and define the Marginal Cost (MC) function.
28. Please graph the Average Total Cost (ATC) and Marginal Cost (MC) functions. Explain how the ATC and MC functions are related. 29. What is the longrun Average Total Cost (ATC_{LR}) function? Please graph three shortrun Average Total Cost Functions and how to derive the ATC_{LR}. 30. Please graph an elongated longrun Average Total Cost (ATC_{LR}) function.
31. Please graph an elongated longrun Average Total Cost (ATC_{LR}) function.
32. Which four factors shift a firm’s cost functions? Please define them in detail. 
