## Unit 5 Assignment: Elasticity of Demand and Consumer Surplus

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Unless specified differently by your course instructor, save this assignment template to your computer with the following file naming format: Course number_section number_Last_First_unit number

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Assignment

In this Assignment, you will calculate the Price Elasticity of Demand, demonstrate a firm understanding of consumer choices based on differing marginal utilities, consumer surplus, and how the buying choice and amount of consumer surplus changes based on various pricing schemes.

In this Assignment, you will be assessed on the following outcome:

AB224-5: Demonstrate how the concept of utility affects purchasing decisions by individuals and consumer surplus.

Questions

1. The accompanying table shows the price and monthly demand for barrels of gosum berries in Gondwanaland.

Price of gosum berries per barrel Native Demand for gosum berries per month
\$100 0
\$90 100
\$80 200
\$70 300
\$60 400
\$50 500
\$40 600
\$30 700
\$20 800
\$10 900
\$0 1000

a. Using the midpoint method (show your work), calculate the price elasticity of demand when the price of barrel of gosum berries rises from \$10 to \$20. What does this estimate imply about the price elasticity of demand of gosum berries?

b. Using the midpoint method (show your work), calculate the price elasticity of demand when the price of barrel of gosum berries rises from \$70 to \$80. What does this estimate imply about the price elasticity of demand of gosum berries?

c. Notice that the estimates from (a) and (b) above are different. Why do price elasticity of demand estimates change along the demand curve?

As an assignment for her Microeconomics course, Matilda used the marginal utilities that she gave to her 3rd music download and her 2nd video download to complete the Experiment Tally Sheet below.

a. A consumer maximizes utility when the last dollar spent on any good generates the same satisfaction as the last dollar spent on every other good. Is Matilda maximizing her utility? Explain your answer.

3. Brandon and his family often rent movies from the new internet movie streaming service, Xanadu. The table below shows Brandon鈥檚 demand schedule for eight movie rentals that Brandon鈥檚 family is interested in watching.

Number of internet video rentals Willingness to pay each rental
1st movie rental \$7
2nd movie rental \$6
3rd movie rental \$5
4th movie rental \$4
5th movie rental \$3
6th movie rental \$2
7th movie rental \$1
8th movie rental \$0

a. If the price of the price of each movie rental from Xanadu is \$3, how many movie rentals will Brandon buy and how much consumer surplus does Brandon receive? Explain your answer.

b. If the price of the price of each movie rental from Xanadu is \$5, how many movie rentals will Brandon buy and how much consumer surplus does Brandon receive? Explain your answer.