WashburnPhillipWashburnEconomics 101: Problem Set 21. The demand for a normal good increases as income increases and decreases as income decreases. The demand for an inferior good decreases as income increases, and can increase as income decreases. a. Normal Goods: Sperry’s and hamburgersb. Inferior goods: one-ply toilet paper and spamSperry’s and Hamburgers are normal goods because as I make more money, I will want to buy more of each good, because I like both of those things.The toilet paper and spam are inferior goods because I only buy those things when I cannot afford a better product. As I make more money, I no longer need to buy the inferior good, and can then simply buy a smaller quantity of the corresponding normal good (2-ply toilet paper and steak).If my income doubled then I would buy more Sperry’s and hamburgers, and would buy much less (possibly 0) one-ply toilet paper and spam.2.a. My total utility from four slices of pizza is greater than that of two because while I get less enjoyment from a piece of pizza than I did from the one before it, I still gain some utility from the fourth piece.b. The marginal utility of the second piece is greater than that of the fourth piece, because by the time I get to the fourth piece I’ve already eaten much pizza and it is nothing new. However, when I got my second slice, I had only had one up until that point, so I get greater use from it. 3.D0 15 30 45 600102030405060708090100Suzi Q's BudgetBagelsUsed BooksWashburn4.The slope of the indifference curve is the marginal utility of the good on the X axis over the marginal utility of the good on the Y axis. All bundles on the indifference curve are seen as equal to each other by the consumer. The slope shows how much more of one good would need to be given up in order for the consumer to feel that the bundle is as good with one more unit of the other good.5.a.P $10 9 8 7 6 5 4 3 2 1Q 0 10 20 30 40 50 60 70 80 90b.ABC1 2 3 4 5 6 7 8 9 100102030405060708090"Beefy" T-shirtsIndividual MarketPriceQuantityWashburnc. (QDN-QDO)/QD=(4-5)/5=-0.2(PN-PO)/PO= (6-5)/5=0.2-0.2/0.2=-1 I-1I= 1Arc elasticity is 1d.e. This would mean I have a high elasticity for “Beefy” T-shirts, as I am not a loyal customer.Unlike cigarette sales, I will not accept the price increase and would simply buy another, cheaper, t-shirt brand6. Yes, it matters who is correct. The higher the elasticity of the demand, the more people will demand the good with a price increase. If they wish to raise the price, they better hope that the first team member (0.5) is correct. Otherwise, they may lose money.7.More Elastic Determinant (i/ii/iii)Meat or beef Beef iDemand for gasoline this week or demand for gasoline this yearDemand for gasoline this weekIiiToothpaste or shoes Shoes iiSalt or buter butter iEssay Questiona) As the quantity of available crops to be sold goes down, the price will rise so farmer can attempt to recoup some of the losses. Consumers will also be more willing to pay more for the newly scarce commodity to ensure they can get the amount they previously demanded.b) With the inelastic demand, the consumer will be required to pay a much higher price to purchase the same amount of corn, and so will buy less of the corn at a higher cost than before. For the elastic demand, the consumer will pay slightly more than they did before, but will buy a smaller quantity of corn.a. Graph:i. Black- Elastic Demandii. Red- Inelastic Demandc) Because of the benefit to the non-flood regions, more corn will be produced in those areas. The amount of corn available for sale may still be smaller than before the flood, but the change may not be as drastic. This means that the equilibrium quantity will go down, and the price will go up. But the changes will not be as severe as first