Assignment 1

ECON 3300-2 Jeff Andersen

A00303875
1) If the students are rational and have the same appetites then the
average food consumption will be higher at University A. We
know that the two universities should have the same average
consumption due to the decision rule; however, it is likely that
the apprehension/worry that you might exceed the 100kg food
cap would cause slightly lower average food consumption at
University B.

2) Based solely on costs listed I would choose to drive rather than

take the bus. Benefits such as the freedom of having my own
transportation would offset additional costs that may arise such
as additional lodging and parking.
Excluding the sunk costs (Insurance, interest, license and
registration) the cost per kilometer of driving would be $0.125
totaling $250 for the trip, which is less than the $260 bus ticket.
Other factors may come into play such as environmental
concerns and other associated pros and cons; however, even still
it is cheaper to drive.

Fuel & oil $1200

Tires 200
Maintenance 1100
Total: $2500 / 20000km = $0.125 * 2000km = $250

3)
 At point e1 the government is making $2000 in tax revenues.
2000kg * $2 per kg = $4000

4) There would be no change in government tax revenues at e2

5)
a) An effective ceiling price on tea (where tea is a complement
to lemons) would cause a price increase for lemons. The
reason this would happen is that if there is a lower supply of
tea, and you only use lemons for your tea then there will be
less lemons purchased and thus the price will increase.
b) An effective ceiling price on tea (where tea is a substitute for
coffee) would cause an initial price increase in coffee as more
people will be switching to coffee when there is less tea
available due to suppliers not producing as much (causing
excess demand), but overall the price of coffee would
decrease as supply adjusted to meet the new found demand.

1)
a) Crude Oil

2
b) Air travel

c) Rail travel

d) Hotel rooms in Cuba

e) Milk

3
7)
a)
Supply: P = 4Q
Demand: P = 20
20 = 4Q
Q=5

Equilibrium is at (5,20)

b)

If sellers must pay a tax of T = $4 per unit the price the

buyers pay would increase and the amount that the sellers
receive would decrease, this would result in a lower
quantity exchanged.

c)

The burden of tax is distributed across buyers and sellers

because if the tax is imposed on the sellers the overall
product price rises and thus affects the buyers’ purchases.

8)

4
9)

10)

If the grant came without restriction the indifference curves

would slide left along the budget constraint closer to “Other
Research” as they would be more likely to spend more of the
grant on other types of research rather than on the mandatory
Geriatric research.