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Answer the following questions and submit to Chapter 5 Questions.

  1. Define the terms utility and the principle of diminishing marginal utility as used by economists.  Explain how these concepts can explain why someone would choose a bowl of spinach over a bowl of ice cream.
  2. How does a free market help to overcome the barrier of scarcity in a society?
  3. Using Figure 5.2 (p. 79), provide your interpretation of what could have caused the move of the line if this was the demand curve for peanuts.
  4. Look at Figure 5.3 (p. 84). Why is the demand for line A much more inelastic than the demand line for E?
  5. Would the demand for A or the demand for E be more affected by an increase in price?
  6. From the list of seven factors that influence demand for a product, which do you believe to be the most influential on the purchase of sugar?
  7. Would could be a likely factor that causes a shift in demand of sugar?
  8. Determine the price elasticity of a milk if the price of milk increases from $4 to $5 per gallon (25% increase), and the quantity demanded declines from 1,000 gallons to 500 gallons (50% decrease), what would be the price elasticity of milk?
  9. Using the example above, if the price of chocolate rises from $1.25 to $2.50 (50% increase) and the sale of milk decreases from 1,000 gallons to 800 gallons (20% decrease), what is the cross-price elasticity of chocolate on milk? In this example, is chocolate a compliment or substitute product?
  10. If the price of orange juice rises by 25% and the sale of milk increases by 40% what relationship exists between orange juice and milk?