**Problem Statement:**John thinks that four 0.5 kg bags of flour are exactly as good as one 2 kg bag of flour. John has €84 euro to spend on flour and he must pay €1.20 for a 0.5 kg bag and €4 for a 2 kg bag.**Task:**(a) Draw John’s budget line, his indifference curve map, and determine his utility-maximizing consumption bundle.(b) Illustrate and explain how John’s consumption bundle changes if the price of 0.5 kg bags falls to €0.80.

Budget constraint: given the price of 2 goods and consumer’s income. The budget constraint shows…

3. John thinks that four 0.5kg bags of flour are exactly as good as one 2kg bag of flour. John has €84 euro to spend on flour and he must pay €1.20 for a 0.5kg bag and €4 for a 2kg bag. (a) Draw John's budget line, his indifference curve map and determine his utility maximising consumption bundle. (b) Illustrate and explain how John's consumption bundle changes if the price of 0.5kg bags falls to €0.80.

3. John thinks that four 0.5kg bags of flour are exactly as good as one 2kg bag of flour. John has €84 euro to spend on flour and he must pay €1.20 for a 0.5kg bag and €4 for a 2kg bag. (a) Draw John's budget line, his indifference curve map and determine his utility maximising consumption bundle. (b) Illustrate and explain how John's consumption bundle changes if the price of 0.5kg bags falls to €0.80.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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