Problem 1
Assume that the price of smartphones increased from $200 to $222 per unit. The manufacturer decides to supply 12,000 units instead of 10,000. Calculate the price elasticity of supply. Is supply elastic or inelastic? Describe at least one factor that determines elasticity.
Problem 2
What is the difference between a public good and a private good? What are the principal characteristics of each? What are the two characteristics of public goods? Why is there a free rider problem when it comes to public goods? Do you consider your local police force a public good or a private good? How come? How about your local cable TV service? Please explain your answer.
Problem 3
Use the following to answer the questions below:
• z is the marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product B.
• Assume MUA = z = 20 - x and MUB = z = 42 - 4y.
• Assume that the consumer has $20 to spend on A and B; that is, x + y = 20.
What is the marginal utility per dollar? What is best way to allocate the expenditure of the $20?