Exam 5: Consumer Welfare and Policy Analysis

Suppose an analyst attempts to estimate a consumer's willingness to pay for a policy that lowers the price of childcare by measuring the amount of income that can be taken away from the consumer (at the new price)such that they can just afford their original bundle of goods.Is this correct? If not,is it more or less than the true compensating variation? Explain with a graph.

Sandy's uncompensated demand for candy is given by the equation Q = 15/p,where Q is the quantity of candy and p is the price.When the price of candy rises from $1 to $3,the change in consumer surplus is

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

Suppose a victim of an accident brings the injurer to court.You are hired to determine the amount of damages.You are specifically asked to find a measure of the amount of money needed to restore the victim to the position he was in prior to the accident.What welfare measure will provide the most accurate measure of this amount?

The graph below shows George's indifference curves and budget lines.From A to B,we can conclude

A study of the benefits of television asked consumers two questions: (1)How much would you pay to watch TV (versus no TV watching),and (2)How much would you have to be paid to voluntarily stop watching TV.Show how these are found with two separate graphs of indifference curves and budget constraints.Are these values likely to be equal? Discuss briefly.

The Equivalent Variation for an increase in the price of a good is

A consumer has the quasi-linear utility function U(q₁,q₂)= 64q₁^1/2 + q₂ Assume p₂ = 1 and Y = 100.Find the consumer's compensating and equivalent variations for an increase in p₁ from 1 to 2.

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

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

Joe's demand for spring water can be represented as p = 10 - Q (where p is measured in $/gallon and Q is measured in gallons).He recently discovered a spring where water can be obtained free of charge.His consumer surplus from this water is

Jeong's uncompensated demand for gizmos is given by Q = 30 - 2p.Jeong's marginal willingness to pay function is

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