6. Connie has a monthly income of $100which she allocates among two goods: meatand potatoes.a) Suppose meat costs $4 per pound andpotatoes $2 per pound. Draw her budgetconstraint.b) The store where Connie buys her grocerieshas a special promotion. If she buys 20pounds of potatoes (at $2 per pound) shegets the next 10 pounds for free. This offerapplies only to the first 20 pounds she buys.All potatoes in excess of the first 20 pounds(excluding bonus potatoes) are still $2 perpound. Meat costs $5 per pound. Draw hernew budget constraint.

The budget line shows the combination of two goods that can be purchased with the given income and…

Answered: 6. Connie has a monthly income of $100…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Problem 1: Suppose you have an income of $100 to spend on two goods. Good 1 costs $25 per unit. Good 2 costs $10 per unit. a) Write down your budget constraint. b) If you spend all your income on Good 1, how much can you buy? c) If you spend all your income on Good 2, how much can you buy? d) Graph your budget line. Please make sure your line passes through the appropriate points. Also, be sure to label the axes. I e) Suppose the price of Good 2 falls to $5 per unit. Draw the new budget line on the graph in Part d). f) Suppose your income falls to $75 to spend on the two goods, where the price of Good 1 is $25 and the price of Good 2 is $5 per unit. Draw the new budget line on the graph in part d). g) Highlight the area on your graph representing bundles you could afford in your budget equation from part a) that you cannot afford with the budget line in part f). h) Highlight the area on your graph representing bundles you can afford in your budget equation from part f) that you could…
What would be the consequences of a 10 percent decrease in price for a good whose price elasticity of demand is 5? O A 50 percent increase in quantity demanded O A decrease in quantity demanded by 1/5 O An increase in quantity demanded by 1/5 O A 50 percent decrease in quantity demanded
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).
7. Bob receives utility from days spent traveling on vacation domestically (D) and daysspent traveling in a foreign country (F) as given by the utilityU(D; F) = DFThe price of a day spent traveling domestically is 160 pounds and in a foreigncountry 200 pounds. Bobís annual budget for traveling is 8000 pounds. (a) Find Bobís utility maximising choice of days traveling domestically and of daystravelling in a foreign country. Find also his utility level from consuming thatbundle. Suppose that the price of domestic traveling increases to 250 pounds per day.Denoting his budget for traveling x, (suppose by now that it is unknown) findthe demand for D and F under the new prices as a function of x.
Demand and Utility Table for Milkshakes Price $4 $3.50 $3.00 $2.50 $2.00 Quantity Marginal Demanded Utility 1 2 3 4 5 Total Utility If the price of milkshakes were $2.50 each, your total utility would be and your marginal utility would be
Suppose you have a budget of 30 to spend on two goods: pizzas and burgers. Each pizza is $5 while each burger is $10. Suppose you already purchased 6 pizzas. What is the maximum number of burgers that you can buy with the remaining funds in your budget?
1. Suppose you get utility from two goods, food and clothing, and have a certain amount income. Explain briefly how to derive the demand curve for food while the price of clothing and the amount of income remain constant?
3) For Nour doughnuts and muffins are perfect substitutes. Doughnuts are £4 a box and muffins are £3 a box. The boxes hold equal numbers. Nour has budgeted £48 a month to spend on these sweets. Which of the following is correct? (a) Nour will buy 12 boxes of doughnuts and no muffins per month. (b) Nour will buy 6 boxes of doughnuts and 8 boxes of muffins per month. (c) Nour will buy no doughnuts and 16 boxes of muffins per month . (d) From this information it cannot be determined how many muffins or doughnuts Nour will buy because the marginal utilities for muffins and doughnuts are not given. 4) The supply of sugar is given by Q, = -50 + 1/2 P. Determine the arc price elasticity of supply between Q = 40 and Q = 100. (a) 7/12. (b) 2. (c) 12/7 . (d) 3/28. (e) None of the above.
Suppose Alex has income of $100 per month. He only consumes pizza and cell phone minutes. Illustrate Alex's budget constraint under each of the following conditions. a. Pizzas cost $10 each and cell phone service cost $0.10 per minute. b. Alex's service provider offers a quantity discount. After the first 600 minutes, the price per minute drops to $0.05. c. Alex's parents decide that he is not allowed to use more than 600 minutes of cell time per month. d. Under Alex's parents dictate, does he ever consume less than 4 pizzas? How do you know? e. Is it possible that without the mandate from his parents but with the discount phone plan available that Alex would ever consume less than 600 minutes of cell time per month? If so, why and if not why not? 1
4. Liam initially has a weekly allowance of €24 to spend on eggs (at €0.40 per egg) and beans (at €0.80 per tin). Liam will only consume 4 eggs with each tin of beans and never changes this proportion. (a) What is the utility maximising amount of eggs and beans that Liam buys each week? (b) Suppose the price of eggs rise to €0.60 per egg but the price of beans falls to €0.60 per tin. At the same time, Liam's weekly allowance rises to €30. How much of each good will Liam now buy? Compare your answer to that in (a) and explain the difference, if there is one. Use a diagram to complement your answer.
Price for good A is $6 and good b is $8. Budget is $36. Good A Good B Quantity Total Utility Quantity Total Utility 1 18 1 32 2 30 2 56 3 38 3 72 4 42 4 80 5 44 5 84 6 3 6 2 7 2 7 1 How many units of the two products will the consumer buy?
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