Jenn is willing to pay $75 for a purse and the purse's price is $60. What is Jenn's consumer surplus on this purse?
What will be an ideal response?
The consumer surplus equals the difference between the marginal benefit of the good and the price actually paid. Jenn is willing to pay $75 for the purse, so its marginal benefit to her is $75. However, she only must pay $60, so Jenn has a consumer surplus of $75 - $60 = $15.
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Suppose the current exchange rate between the U.S. dollar and the Mexican peso is $0.10 = 1 peso. Furthermore, suppose the price level in Mexico rises 15 percent while the U.S. price level remains constant. According to the purchasing power parity theory, which of the following exchange rates comes closest to being the equilibrium exchange rate?
A) $0.087 = 1 peso B) $0.085 = 1 peso C) $0.115 = 1 peso D) $0.13 = 1 peso
Utility analysis helps economists understand
A) how people make decisions about what they buy and how much. B) how to eliminate opportunity costs. C) how to eliminate scarcity. D) none of the above.