ECON 162-B1Summer 2014Due: Jun

ECON 162-B1Summer 2014Due: June 9th 10:00 amPROBLEM SET NUMBER FOUR1. 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$0.60Value of second donut$0.50Value of third donut$0.40Value of fourth donut$0.30Value of fifth donut$0.20Value of sixth donut$0.10a. 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.

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