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- - Suppose the price of Pizza is $10 the price of cola is $1, and the consumer's income is $60. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis. If the consumer's income rises to $100 while the prices of pizza and cola are constant, then the budget line for pizza and cola would ? a- not change b- now intersect the horizontal axis at 12 pizzas and the vertical: axis at 120 colas c- now intersect the horizontal axis at 10 pizzas and the vertical axis at 100 colas d- would rotate along the cola axis2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x, and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x1 and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal con- sumption bundle? Explain what you your answer means. (e) Suppose the price of x, increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint.2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x1 and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x, and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal con- sumption bundle? Explain what you your answer means. (c) Suppose the price of x, increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint. (d) Explain the impact of the substitution effect and the income effect of the price change in part (c) on the individual's consumption of x, and x2. (Hint: For full credit, explain both the separate and combined impacts of substitution and income effects on x1. Do the same for x2).
- -Suppose the price of Pizza is $10 the price of cola is $1, and the consumer's income is $60. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis. If the price of cola doubles to $2 while both the price of pizza is still $10, and the income is constant at $60 then the : a-Budget constraint intersects the vertical axis 30 colas b- Slope of the budget constraint rises to -5/2 c- Budget constraint intersects the horizontal axis at 25 pizzas d- budget constraint intersects the horizontal axis 5 pizzas I4) Suppose that Laura goes on vacation for a week. She leaves Baxter with her brother, Mike, and gives him $10 to buy Baxter's food (lettuce and carrots). Given that the price of a lettuce head is $1 and the price of a carrot is $0.50, sketch the budget constraint that represents Mike's combination choices for Baxter's food. Make sure to label all your axis and intersection points.5) Below is John's indifference map for juice and snacks. Also shown are three budget lines resulting from different snack prices and assuming he has $20 to spend on these goods. (Hint: Be aware that we put price of product (snacks) on the Y-axis to draw demand curve.) Juice 20 15. 134 10- 5710 20 40 Snacks Which of the following points are on John's demand curve for snacks? a) p = 2, q=10 b) p=2, q=13 c) p = 2,q=5 d) p = 1, q=20
- 5. Assume that a consumer has two goods to consume: medical care services (M) and all other goods (X). She has monthly income of $4500. A. Assume that the price of medical care services is $500 per unit and price of other goods is $100 per unit. Plot the budget constraint of this consumer. Remember to label the origin, axis, and intercepts on your graph. B. Plot how the budget constraint would change when the price of other goods increases to $150 per unit. How did the relative price change? Briefly explain. C. Did the consumer better off or worse off after the change in price? Please explain. (Hint: you can use concepts of income effects and substitution effects to answer this question). D. From your own experience, how did your budget constraints most recently change? Was it due to the COVID pandemic?5. Maximizing Utility when Purchasing Two Goods A consumer has an income of $24. The only two goods the consumer is interested in purchasing are t-shirts and tacos. The marginal-utility schedules for these two goods are shown in the table below. If the price of t-shirts is $8 and the price of tacos is $2, how much of each good should the consumer purchase? Hint: You must calculate the MU/P as the first step in the process. Good A Good B Quantity MU MU/P MU MU/P 1 48 24 2 32 16 3 24 12 4 16 8 5 8 6 6 4 4 1 t-shirt and 3 tacos 2 t-shirts and 4 tacos 3 t-shirts and 5 tacos 4 t-shirts and 6 tacos32/ Assume that a consumer has a given budget or income of $24 and that she can buy only two goods, apples or bananas. The price of an apple is $3.00 and the price of a banana is $2.00. What is the slope of the budget line if the quantity of apples were measured on the horizontal axis and bananas on the vertical axis?
- 3) Suppose Joe's utility for lobster (L) and soda (S) can be represented as U =10.5 50.5 MUL=0.5 L -0.5 s0.5, MUs=0,5 L0.5 s-0.S. Joe walks into a restaurant with $72. Lobsters cost $18 each and sodas cost $2 each. How much lobster and soda will Joe consume if he intends to spend all his money? (There are no tax and no tips.)1. A consumer has an income of $3024 to spend each day. The only two goods the consumer is interested in purchasing are goods A and B. The marginal-utility schedules for these two goods are shown in the table below. The price of B does not change and is $378. The marginal utility per dollar from B is also shown in the table. But the price of A varies as shown in the table. The marginal utility per dollar from A when the price of A is $1512 and $756 is shown in the following table. Good A Good B Quantity MU MU/$1512 MU/$756 MU MU/$378 1 24 2 15 3 12 4 8 5 6 6 4 48 32 24 16 8 4 ||||| ||||| |||QUESTION 7 Assume the following is the budget equation for Courtney who spends her income between music concerts and movies: 86 Music Concerts + 85 Movies = 7216 If Music Concerts are measured on the vertical axis, what would be the slope of the budget line ? 2
