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4. Indifference Curve and Budget Line (20%) Annie has an income of $160 an hour. Popcorn costs $5 a bag, and costs $4 a six-pack of energy drink a. Draw a graph of Annie's budget line with six-pack of energy drink on the x- axis, and popcorn on the y-axis. (4%) b. What is the slope of Annie's budget line (2%)? What could this slope be also called? (2%) c. If we know that Annie maximizes her utility with the purchase of 20 bags of popcorn, how many six-pack energy drink she will purchase?-(an estimate from your graph & actual calculation) (5%), draw an indifference curve reflecting this optimum. (5%)

4. Indifference Curve and Budget Line (20%) Annie has an income of $160 an hour. Popcorn costs $5 a bag, and costs $4 a six-pack of energy drink a. Draw a graph of Annie's budget line with six-pack of energy drink on the x- axis, and popcorn on the y-axis. (4%) b. What is the slope of Annie's budget line (2%)? What could this slope be also called? (2%) c. If we know that Annie maximizes her utility with the purchase of 20 bags of popcorn, how many six-pack energy drink she will purchase?-(an estimate from your graph & actual calculation) (5%), draw an indifference curve reflecting this optimum. (5%)

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question 5.  Partial info contained in question 4 

Kai-Li Tsai, Ph.D. 4. Indifference Curve and Budget Line (20%) Annie has an income of $160 an hour. Popcorn costs $5 a bag, and costs $4 a six-pack of energy drink a. Draw a graph of Annie’s budget line with six-pack of energy drink on the x- axis, and popcorn on the y-axis. (4%) b. What is the slope of Annie's budget line (2%)? What could this slope be also called? (2%) c. If we know that Annie maximizes her utility with the purchase of 20 bags of popcorn, how many six-pack energy drink she will purchase?-(an estimate from your graph & actual calculation) (5%), draw an indifference curve reflecting this optimum. (5%) 5. Income Effect & Substitution Effect (20%)- (still use budget line with energy drink on the x-axis, and popcorn on the y-axis). If Annie's hourly income remains $160. The price of energy drink is on sale and drops to $2 a six-pack of can energy drink, while the price of popcorn remains at $5 a bag. a. Draw the new budget line(s) (with energy drink on the x-axis, and popcorn on the y-axis) (5%) b. Use indifference curve to identify the change in quantity purchased (5%) c. and illustrate the income effects (points and distance) (10%) and substitution effects (points & distance) (5%)
Transcribed Image Text:Kai-Li Tsai, Ph.D. 4. Indifference Curve and Budget Line (20%) Annie has an income of $160 an hour. Popcorn costs $5 a bag, and costs $4 a six-pack of energy drink a. Draw a graph of Annie’s budget line with six-pack of energy drink on the x- axis, and popcorn on the y-axis. (4%) b. What is the slope of Annie's budget line (2%)? What could this slope be also called? (2%) c. If we know that Annie maximizes her utility with the purchase of 20 bags of popcorn, how many six-pack energy drink she will purchase?-(an estimate from your graph & actual calculation) (5%), draw an indifference curve reflecting this optimum. (5%) 5. Income Effect & Substitution Effect (20%)- (still use budget line with energy drink on the x-axis, and popcorn on the y-axis). If Annie's hourly income remains $160. The price of energy drink is on sale and drops to $2 a six-pack of can energy drink, while the price of popcorn remains at $5 a bag. a. Draw the new budget line(s) (with energy drink on the x-axis, and popcorn on the y-axis) (5%) b. Use indifference curve to identify the change in quantity purchased (5%) c. and illustrate the income effects (points and distance) (10%) and substitution effects (points & distance) (5%)
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