Question 1 Marcus is a second year business student and has two options for meals: dining at university for £6 per meal, or eating a meal deal offered at a supermarket for £1.50 per meal. His weekly food budget is £60. a) Draw the budget constraint showing the trade-off between university meal and pre- packaged supermarket meal. Assume that Marcus spends equal amounts on the goods. Draw an indifference curve showing the optimum choice. Label the optimum as point A. Draw supermarket meal on the vertical axis. b) The price of the supermarket meal deal rises to £2. Assume that Marcus now spends only 30% of his income on university meals. Show the consequences of the changes using the graph in part (a). Label the new optimum as point (b). c) Comment on the result in part (b). What does this result say about the income and substitution effects? Explain. d) Calculate and compare the relative prices (i.e., opportunity cost) of supermarket meals and university meals before and after the price change. Explain how the price change affects the relative prices of the two meals.

Question 1 Marcus is a second year business student and has two options for meals: dining at university for £6 per meal, or eating a meal deal offered at a supermarket for £1.50 per meal. His weekly food budget is £60. a) Draw the budget constraint showing the trade-off between university meal and pre- packaged supermarket meal. Assume that Marcus spends equal amounts on the goods. Draw an indifference curve showing the optimum choice. Label the optimum as point A. Draw supermarket meal on the vertical axis. b) The price of the supermarket meal deal rises to £2. Assume that Marcus now spends only 30% of his income on university meals. Show the consequences of the changes using the graph in part (a). Label the new optimum as point (b). c) Comment on the result in part (b). What does this result say about the income and substitution effects? Explain. d) Calculate and compare the relative prices (i.e., opportunity cost) of supermarket meals and university meals before and after the price change. Explain how the price change affects the relative prices of the two meals.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2)Ben is choosing between cookies and soda. Denote the marginal utility of cookies is MUc, and the marginal utility of soda is MUs. Which of the following relationship is true regarding the marginal utility of substitution (MŘS) of cookie in terms of soda? A) MRS= MUc B) MRS = MUS C) MRS = MUS / MUC D) MRS = MUc / MUs
2. Sally consumes two goods, X and Y. Her utility function is given by the expression U = 3XY². The current market price for X is £10, while the market price for Y is £5. Sally's current in come is £500. (a) Sketch a set of two indifference curves for Sally in her consumption of X and Y. (b) Write the expression for Sally's budget constraint. Graph the budget constraint and determine its slope. (c) Determine the X,Y combination which maximises Sally's utility, given her budget constraint. (d) Calculate the impact on Sally's optimum market basket of an increase in the price of X to $15. What will happen to her utility as a result of the price increase?
Please show your answer step by step with reasons. (i) A consumer has income of £3,000. Apple juice is priced at £3 a bottle and cheese is priced at £6 a kilo. Draw the budget constraint for a consumer with standard preferences. What is the slope of this budget constraint?(ii) Show a consumer’s budget constraint and indifference curves for apple juice and cheese. Show the optimal consumption choice. If the price of juice is £3 a bottle and the price of cheese is £6 a kilo, what is the marginal rate of substitution at this optimum? (iii) The price of cheese rises from £6 to £10 a kilo, while the price of juice remains at £3 a bottle. For a consumer with a constant income of £3,000, show what happens to consumption of juice and cheese. Decompose the change into income and substitution effects.
Please Answer iv) A student living in a university hostel has two options for meals: eating at the dining hall for Rs.600 per meal, or eating a meal at Dhaaba for Rs.150 per meal. His weekly food budget is Rs. 6000 Draw the budget constraint showing the trade-off between dining-hall meals and meals at Dhaaba. Assuming that he spends equal amounts on both goods, draw an indifference curve showing the optimum choice. Label the optimum as point A. Suppose the price of a Dhaaba meal now rises to Rs.200. Assume that our student now spends only 30 percent of his income on dining-hall meals. Label the new optimum as point B. iv) Use points A and B to draw a demand curve for meals at Dhaaba. What is this type of good called?
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1. Jim's preferences for pears and apples can be summarized by the following utility function: U(Xa,Xp)=XaXp where xa is the quantity of apples and xp is the quantity of pears. a) Draw an indifference curve for Jim by calculating a series of bundles that all produce the same level of "utility" and plotting them. Interpret the slope of the indifference curve (the marginal rate of substitution). b) Calculate the formula for Jim's marginal rate of substitution, as a function of apples and pears consumed.¹ c) What happens to the numeric value of Jim's marginal rate of substitution along an indifference curve (i.e., holds his utility constant) as he increases the number of pears he consumes and decreases the number of apples? For example, compare his MRS for a bundle consisting of 9 apples and 4 pears to his MRS for a bundle consisting of 9 pears and 4 apples and interpret the change. d) Suppose something increases Jim's desire for apples (for example, apples are found to reduce the risk of…
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True or false. A budget constraint, budget line or budget set is a graphical way to illustrate all possible combinations of two goods that a person can afford.
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