Exam 5: Consumer Welfare and Policy Analysis

Draw a graph with Goods Per Day on the vertical axis and Leisure Hours Per Day increasing from left to right on the horizontal axis.Show that a person who works can work fewer hours and increase utility when the wage rate increases.

Assume a consumer has a horizontal demand curve for a product.His consumer surplus from buying the product

As the price of a good increases,the loss in consumer surplus is larger,

For the following, please answer "True" or "False" and explain why. -A tax cut will unambiguously lower income-tax revenue.

For the following, please answer "True" or "False" and explain why. -The equivalent variation is always less than the consumer's income

Mary purchased a stuffed animal toy for $5.After a few weeks,someone offered her $100 for the toy.Mary refused.One can conclude that Mary's consumer surplus from the toy is

The compensation variation and equivalent variation will be closer to each other when

Shin's uncompensated demand for widgets is given by Q = 10/p.According to this demand,Shin's Marginal Willingness to Pay function is

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).At the current price of 35¢ per minute,consumer surplus equals

In response to an increase in the wage rate,the substitution effect will cause a person to

Sandy's current consumer surplus for candy is 20.Candy is a normal good for her.When her income increases and the price of candy remains unchanged,her consumer surplus will

Suppose a consumer purchases Food (F)and other goods (X)with their income of $100.For simplicity,suppose that food and other goods are measured in $1 units,so the price of each is $1.Currently,the consumer can purchase unlimited food stamps by paying 10¢ for $1 of food.With this,the consumer purchases 500 food stamps (for 500 units of food)and 50 units of X.As a result,the government must pay 90¢ towards food,for a total cost of $450.Using a graph of budget constraints and indifference curves,show that the consumer prefers to receive a cash gift of $450 over the food stamp option.

Suppose an analyst attempts to estimate a consumer's willingness to pay for a policy that lowers the price of childcare.The willingness to pay should be measured as

-The above figure shows an individual's demand curve for time per month spent telecommunicating while driving (talking on the car phone.)A car phone is useless except for talking with somebody who is not in the car.If calls are priced at ten cents per minute,what is the consumer surplus derived from talking? What is the most this person would pay for the car phone? Explain.

Sarah and David both have linear demand curves for lemonade.Sarah's demand curve for lemonade intersects David's demand curve at a price of 50 cents per glass.Sarah's demand curve is more inelastic than David's.A change in the price of lemonade from 50 cents to 25 cents per glass will

If lower-income households spend a greater share of their income on cigarettes than do higher-income households,then a tax that raises the price of cigarettes will

What does it mean to say the labor supply is backwards bending? How does this relate to the direction and magnitude of the income and substitution effects? Will the labor supply be backwards bending if Leisure is a normal good? Will it be backwards bending if Leisure is an Inferior good?

For the following, please answer "True" or "False" and explain why. -The change in total welfare from a 10% increase in price will depend only on the elasticity of demand.

Suppose a person's utility for leisure (L)and consumption (Y)can be expressed as U = Y + L⁰.⁵.Show what happens to the person's labor supply curve when the income tax is cut from 70 % to 30 %.Denote hours worked as H and wage per hour as w.

Ralf's uncompensated demand function for shoes is given by Q = 100/p.What is the change in consumer surplus when the price of shoes rises from p=20 to p=25?