A consumer is choosing between magazines and books. Several indifference curves are shown on the diagram to the right. Consumer income allocated for these two goods is equal to $500. The price of books (Px) is equal to $10.00. 1.) Use the line drawing tool to draw four appropriate budget lines to represent a consumer optimum at different prices for magazines (Py) for all indifference curves shown. Properly label the lines. 2.) Use the line drawing tool to draw the price consumption curve for magazines. Properly label this line. Carefully follow the instructions above, and only draw the required objects. Magazines 50- 45- 40- 35- 30- 25- 20- 15- 10- 5- 0- 0 10 20 30 40 50 60 70 80 90 100 110 Books

A consumer is choosing between magazines and books. Several indifference curves are shown on the diagram to the right. Consumer income allocated for these two goods is equal to $500. The price of books (Px) is equal to $10.00. 1.) Use the line drawing tool to draw four appropriate budget lines to represent a consumer optimum at different prices for magazines (Py) for all indifference curves shown. Properly label the lines. 2.) Use the line drawing tool to draw the price consumption curve for magazines. Properly label this line. Carefully follow the instructions above, and only draw the required objects. Magazines 50- 45- 40- 35- 30- 25- 20- 15- 10- 5- 0- 0 10 20 30 40 50 60 70 80 90 100 110 Books

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Emily is a utility maximizer. Her income is $100, which she can spend on cafeteria meals and on notepads. Each meal costs $5 and each notepad costs $2. At these prices Emily chooses to buy 16 cafeteria meals and 10 notepads. a) Draw a diagram that shows Emily’s choice using an indifference curve and her budget line, placing notepads on the vertical axis and cafeteria meals on the horizontal axis. Label the indifference curve, I1, and the budget line BL1. Make sure you calculate the endpoints of the budget constraint. b) The price of notepads falls to $1; the price of cafeteria meals remains the same. On the same diagram, draw Emily’s budget line with the new prices and label it BL2. c) Lastly, Emily’s income falls to $90. On the same diagram, draw his budget line with this income and the new prices and label it BL3. Is she worse off, better off, or equally as well off with these new prices and lower income than compared to the original prices and higher income?
Another instance when people are likely not to spend a dime (or a minute) on an item is when they have a dislike for mixing the item with other items available. In this case, we say the consumer has ‘non-convex preferences’ and indifference curves are bowed out from the origin. In plain language, the consumer has a preference for binging. We often feel this way towards our favorite social media app. Consider a kid who has four hours a day to spend on social media. They enjoy spending time on Snapchat (x) or spending time on Twitter (y). a) Write the kid’s time constraint and illustrate it in a graph where you measure time spent on Snapchat along the horizontal axis and time spent on Twitter along the vertical axis. This kid’s utility from time spent on Snapchat and time spent on Twitter is U(x,y) = 4x2+ y2. b) In your graph, draw a couple of the kid’s indifference curves. Notice how the kid’s |MRSY,X| increases along each curve as he spends more time on Snapchat and less time on…
Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has three times the alcohol as a six-pack of beer. Assume that Tony only cares about the total amount of alcohol in his basket. (use vodka on the X-axis and beer measured in six-pack on the Y-axis) a) Devise a utility function to represent these preferences. b) Suppose a bottle of vodka costs $40, a six-pack of beer costs $10, and the budget is $200. Write the budget constraint. c) Solve Tony’s utility maximization problem and find the optimal combination. d) Suppose that a bottle of vodka cost has increased to $50. What will be his new optimal combination.
A consumer has a budget of £12 to split between two goods: good 1 has a price of 2, good 2 has a price of 3. Write the consumer’s budget constraint algebraically. Convert this budget constraint into the formula for the budget line. Show this line on a suitably labelled graph. The consumer’s budget increases to £24. Show the effect of this change graphically. A consumer dislikes good 1, and dislikes good 2. Show these preferences on a suitably labelled graph with an indifference curve. Label the graph: which areas would be preferred to those on the line?
Assume that a consumer can buy only two goods, X and Y, and has an income of $13,000. The price of X is $60 and the price of Y is $140. What is the slope of the budget line if X is measured horizontally and Y is measured vertically? Note that you will need to include a negative sign in your answer. If needed, round your answer to the nearest two decimal places.
6.
Suppose you have a $20 gift card and want to buy Blue and Red yarn. The utility function from yards of blue (B) and red (R) yarn can be expressed as follows: U(B,R) = 3B+R Red yarn costs $4 per yard. blue yarn costs $4 per yard. A) Graph the budget constraint and the indifference curves that can be reached. How many yards of each type of yarn will he purchase at these prices with his gift card?