ECON 162-B1
Summer 2014
Due: June 9th 10:00 am
PROBLEM SET NUMBER FOUR
1. You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease the price of admission? Explain.
2. Tammy loves donuts. The table shown reflects the value Tammy places on each donut she eats:
Value of first donut
$0.60
Value of second donut
$0.50
Value of third donut
$0.40
Value of fourth donut
$0.30
Value of fifth donut
$0.20
Value of sixth donut
$0.10
a. Use this information to construct Tammy’s demand curve for donuts.
b. If the price of donuts is $0.20, how many donuts will Tammy buy?
c. Show Tammy’s consumer surplus on your graph. How much consumer surplus would she have at a price of $0.20?
d. If the price of donuts rose to $0.40, how many donuts would she purchase now? What would happen to Tammy’s consumer surplus? Show this change on your graph.
3. Which causes a shortage of a good, a price ceiling or a price floor? Justify your answer with a graph and explain why economists usually oppose controls on prices.
4.