Other goods per month 2. (10 points) RB Inc., is a wholesaler specializing in dry foods, such as rice and dry beans. Assume that these dry goods are all considered inferior goods. RB, Inc.'s manager is troubled by a recent article in The Wall Street Journal that says a recession is imminent and that income will fall by 3 percent over the next year. What do you think is likely to happen to the equilibrium price of the products RB Inc. sells, if there is a recession and income falls? You have to explain what is expected to happen to demand and/or supply and therefore to the equilibrium price. You may include a graph if you wish to. 3. (10 points) (a) Angela 1112 (b) Betty Other goods per month 2 3 L' L², BOGOF 3 Rooms, Nights per month L2, BOGOF 4 Rooms, Nights per month (BOGOF indicates the Buy Three Get One Free budget line, which is L² in both graphs)) Angela and Betty are deciding how many nights to stay at a resort. Given above are the budget lines and indifference curves for both Angela and Betty. They are not travelling together and therefore will make independent decisions (they do not have to stay the same number of nights) L' is the budget line for each of them before any discounts are offered. Each of them is offered a "Buy Three Nights Get One Free" deal, where if they stay for three nights the fourth night is free. This is just a one-time discount and all subsequent nights after the fourth night are at the undiscounted price. The budget line after the discount is the heavily shaded blue line L². You may assume that each consumer wishes to maximize their utility (satisfaction) when determining the number of nights they will stay. (a) With the budget line at L' how many nights will Angela stay? (b) With L' as the budget line how many nights will Betty stay? (c) With the budget line of L² (after the discount) will Angela take advantage of the offer to pay for three nights and stay for the fourth night free? Please explain. (d) With the budget line of L² (after the discount) will Betty take advantage of the offer to pay for three nights and stay for the fourth night free? Does Betty move to a higher indifference curve after the discount? Please explain.
Other goods per month 2. (10 points) RB Inc., is a wholesaler specializing in dry foods, such as rice and dry beans. Assume that these dry goods are all considered inferior goods. RB, Inc.'s manager is troubled by a recent article in The Wall Street Journal that says a recession is imminent and that income will fall by 3 percent over the next year. What do you think is likely to happen to the equilibrium price of the products RB Inc. sells, if there is a recession and income falls? You have to explain what is expected to happen to demand and/or supply and therefore to the equilibrium price. You may include a graph if you wish to. 3. (10 points) (a) Angela 1112 (b) Betty Other goods per month 2 3 L' L², BOGOF 3 Rooms, Nights per month L2, BOGOF 4 Rooms, Nights per month (BOGOF indicates the Buy Three Get One Free budget line, which is L² in both graphs)) Angela and Betty are deciding how many nights to stay at a resort. Given above are the budget lines and indifference curves for both Angela and Betty. They are not travelling together and therefore will make independent decisions (they do not have to stay the same number of nights) L' is the budget line for each of them before any discounts are offered. Each of them is offered a "Buy Three Nights Get One Free" deal, where if they stay for three nights the fourth night is free. This is just a one-time discount and all subsequent nights after the fourth night are at the undiscounted price. The budget line after the discount is the heavily shaded blue line L². You may assume that each consumer wishes to maximize their utility (satisfaction) when determining the number of nights they will stay. (a) With the budget line at L' how many nights will Angela stay? (b) With L' as the budget line how many nights will Betty stay? (c) With the budget line of L² (after the discount) will Angela take advantage of the offer to pay for three nights and stay for the fourth night free? Please explain. (d) With the budget line of L² (after the discount) will Betty take advantage of the offer to pay for three nights and stay for the fourth night free? Does Betty move to a higher indifference curve after the discount? Please explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Other goods per month
2. (10 points) RB Inc., is a wholesaler specializing in dry foods, such as rice and dry beans.
Assume that these dry goods are all considered inferior goods. RB, Inc.'s manager is troubled by
a recent article in The Wall Street Journal that says a recession is imminent and that income will
fall by 3 percent over the next year. What do you think is likely to happen to the equilibrium
price of the products RB Inc. sells, if there is a recession and income falls? You have to explain
what is expected to happen to demand and/or supply and therefore to the equilibrium price. You
may include a graph if you wish to.
3. (10 points)
(a) Angela
1112
(b) Betty
Other goods per month
2
3
L'
L², BOGOF
3
Rooms, Nights per month
L2, BOGOF
4
Rooms, Nights per month
(BOGOF indicates the Buy Three Get One Free budget line, which is L² in both graphs))
Angela and Betty are deciding how many nights to stay at a resort. Given above are the
budget lines and indifference curves for both Angela and Betty. They are not travelling together
and therefore will make independent decisions (they do not have to stay the same number of
nights) L' is the budget line for each of them before any discounts are offered.
Each of them is offered a "Buy Three Nights Get One Free" deal, where if they stay for
three nights the fourth night is free. This is just a one-time discount and all subsequent nights
after the fourth night are at the undiscounted price. The budget line after the discount is the
heavily shaded blue line L². You may assume that each consumer wishes to maximize their
utility (satisfaction) when determining the number of nights they will stay.
(a) With the budget line at L' how many nights will Angela stay?
(b) With L' as the budget line how many nights will Betty stay?
(c) With the budget line of L² (after the discount) will Angela take advantage of the offer to pay
for three nights and stay for the fourth night free? Please explain.
(d) With the budget line of L² (after the discount) will Betty take advantage of the offer to pay
for three nights and stay for the fourth night free? Does Betty move to a higher
indifference curve after the discount? Please explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education