Answered: Miley Cyrus, under the conditions of a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Miley Cyrus, under the conditions of a court order, is required to enroll in the Summer session at Kardashian College. She is granted $50 a week to spend: either on energy drinks at $2.25 each or on gasoline for her Bentley at $3.00 per gallon.

a.) Draw Miley’s opportunity set. Label her feasible set. (Put gasoline on the horizontal axis.)

(Suggestion: Draw a sufficiently large diagram as you will add more items to the same graph in subsequent parts.)

b.) In part a), what is the trade-off (opportunity cost) of energy drinks in terms of gasoline?

c.) In the graph for part a) above, now draw each new budget constraint she would face if:

1. The price of energy drinks fell to $2, ceteris paribus;
2. The price of gasoline rose to $3.50 per gallon, ceteris paribus;

d) In each case of part c), how does the trade-off (opportunity cost) of energy drinks in terms of gasoline

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