(a)
Impact of increased price of bus travel on the travel decision.
(a)
Explanation of Solution
The consumer decision depends on the price and the choices. When the price of a round ticket increases from $20 to $45, it means that the cost have been increased by 125 percent. Thus, the impact of such an increased fare on the individual will be higher. If the income remains unchanged, the impact will be much larger. This would reduce the disposable income to a greater extend. As a result, the frequency of visiting a friend would decline; otherwise less costly alternative methods come up in the economy for the individual.
Consumer choices: The consumer choices are the decisions that the consumers take from the range of options that the consumers have. They determine the products that the consumers will purchase and consume over time with the given income.
(b)
The 25 percent cut in the tuition and its impact on the student.
(b)
Explanation of Solution
The tuition fee is the main important fee that the students have to pay. When there is a 25 percent cut in the tuition fee, it will reduce the fee burden of the students. The students can use the money saved through 25 percent cut in tuition to watch movies or games or any other entertainment activities that might provide them with higher utilities. The students could make use of the time saved through 25 percent cut in the tuition to work and earn some wage.
(c)
Reward of $300 for 5 years and its impact on the individual.
(c)
Explanation of Solution
The reward that the student receives acts as an additional income to the student. It is fixed for the next five years, which means that the student can save the money if required or use the money to meet their day-to-day expenses or the tuition fee expenses, and so forth. The student can go for some leisure activities, instead of working part-time to earn a little wage.
(d)
Impact of higher interest rate on the savings account.
(d)
Explanation of Solution
The reward for not using the money and depositing it in the bank is the interest rate. When the interest rate increases, the interest amount that the depositor receives from the bank for their deposits increases. Thus, a higher interest rate will attract the individual to save more and consume less. Sometimes, the consumer will increase his consumption as the interest income earned by the investor increases.
(e)
Price of a meal doubles and its impact on the individual.
(e)
Explanation of Solution
Food is an important factor which is required to keep the health of an individual intact. When the price of a meal doubles, the cost of the food doubles. Thus, the individual have to pay a double amount than before to get the meal. This results in lower disposable income of the individual. This might reduce the consumption of the individual and lead the individual to work more, in order to earn more to keep up the standard of living.
(f)
New part-time job offering and its impact on the individual.
(f)
Explanation of Solution
When the new business opens up in the nearby locality, it can provide job to the individual. Thus, the individual can go for the job and earn an income which helps the individual to ease his living standards. As the number of hours working increases, it increases the wage earned by the individual as well as increase the demand for goods and services, including the leisure.
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Chapter 6 Solutions
Principles of Microeconomics
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