GE Chapter 04 solutions_fmt

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1、Chapter4

2、Demand,Supply,andEquilibrium39Chapter4Demand,Supply,andEquilibriumQuestions1.Whatismeantbyholdingallelseequal?Howisthisconceptusedwhendiscussingmovementsalongthedemandcurve?Howisthisconceptusedwhendiscussingmovementsalongthesupplycurve?Answer:

3、Holdingallelseequalmeansthateverythingotherthanthevariableinquestionisassumedtoremainconstant.Whenwemovealongademandcurveweareassumingthatallofthedeterminantsofthedemandforagoodotherthanthepriceofthegood(e.g.,income,thepricesofothergoods)remainconstant

4、.Whenwemovealongasupplycurveweareassumingthatallofthedeterminantsofthesupplyofagoodotherthanthepriceofthegood(e.g.,wagerates,thepriceofrawmaterial,technology)remainconstant.2.Whatismeantbydiminishingmarginalbenefits?Areyoulikelytoexperiencediminishingm

5、arginalbenefitsforgoodsthatyoulikealot?Arethereexceptionstothegeneralruleofdiminishingmarginalbenefits?(Hint:thinkaboutbatteriesthatyouwoulduseinaflashlightthatrequirestwobatteries.)Explainyouranswer.Answer:Diminishingmarginalbenefitfromagoodsuggeststh

6、atthewillingnesstopayforanadditionalunitdeclinesasmoreisconsumed.Youarelikelytoexperiencediminishingmarginalbenefitevenfromgoodsthatyoulikealot,althoughyouwillprobablyconsumemoreofthosegoodsbeforediminishingmarginalbenefitssetsin.Thefirsticecreamisdeli

7、cious.Thesecondisstillverytastybutnotquiteasgoodasthefirst.Thethirdmightmakeyousicktoyourstomach.Yes,therecouldbeexceptionstotheruleofdiminishingmarginalreturns.Ifaflashlightdoesnotfunctionwithoutbothbatteries,youwouldexperienceincreasingmarginalbenefi

8、ts;thefirstbatteryisuselessbutthesecondmakestheflashlightwork.3.Howisthemarketdemandschedulederivedfromindividualdemandschedules?Howdoesthemarketdemandcurvedifferfromanindividualdemandcurve?Answer:Wewouldderivethemarketdemandschedulebysummingtheindivid

9、ualdemandsateverypossibleprice.So,forexample,ifConsumer1wouldbuy6unitsofagoodwhenthepriceis$5andConsumer2wouldbuy4units,thenthemarketdemandat$5is10units.Themarketdemandcurveisthesumoftheindividualdemandcurvesofallthepotentialbuyers.Them