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A college student has two options for meals: eating at the dining hall for $6 per meal, or eating at Arby’s for $1.50 per meal. Her weekly food budget is $60. Her indifferences curves conform to the four assumptions about preferences.
Suppose her preferences are such that, at her optimal
consumption bundle, she spends equal amounts of money on the two goods. Draw an indifference curve showing this optimum bundle. Label this bundle as A*.
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- A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup O’ Soup for $1.50 per meal. His weekly food budget is $60. Draw the budget constraint showing the trade-off between dining hall meals and Cups O’ Soup. 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 Cup O’ Soup now rises to $2. Using your diagram from part (a), show the consequences of this change in price. Assume that our student now spends only 30 percent of his income on dining hall meals. Label the new optimum as point B. What happened to the quantity of Cups O’ Soup consumed as a result of this price change? What does this result say about the income and substitution effects? Explain.Ursula views one cup of frozen yogurt to be a perfect substitute for threepieces of chocolate chip brownies. A cup of frozen yogurt sells for $6, and a piece of chocolate chip brownies is $3, and Ursula has a monthly budget of $180 to buy frozen yogurt andbrownies.a) What bundle should Ursula buy to maximize her utility? Show how to determine this bundle on a diagram using indifference curves and a budget line ((with frozen yogurt –Y– on the vertical axis).b) If the price of a cup of frozen yogurt increases to $9, how would Ursula’s behavior change? Show the utility-maximizing bundles on diagrams with budget line and indifference curves (with frozen yogurt –Y– on the vertical axis).Suppose Jane spends $48 each month on Oreo cookies with a price of $2 per package, and salt and vinegar chips with a price of $3 per bag. a) With chips on the horizontal axis, draw Jane budget constraint, making sure to indicate the horizontal and vertical intercepts. b) Suppose that at current prices, Jane purchases 6 bags of chips each month. Draw an indifference curve tangent to Jane budget constraint consistent with this choice (assume Jane is maximizing her utility). Label her chosen bundle with the letter A. How many packages of Oreos does Jane buy? c) Suppose that the price of chips falls to $2 per bag, and Jane increases her chip consumption to 8 bags each month. Draw Jane’s new budget constraint and indicate her chosen bundle with an appropriately drawn indifference curve. Label her utility-maximizing bundle with the letter B. (Be sure to determine the right quantities of both chips and Oreos!) d) A major chip producer has experienced a fire, and the disruption of supply has…
- Kevin likes going to the ballpark to watch baseball, and he also is fond of going to the theater to listen to the symphony orchestra. The following diagram shows two of Kevin's indifference curves for going to ballgames and symphonies. With Kevin's initial budget constraint (BC1), he chose to go to five symphonies and five baseball games per month (point X). Then his budget constraint shifted to BC2, and he chose to go to four symphonies and four ballgames per month (point Y). BALL GAMES 8 10 I I I I 4 5 SYMPHONIES BC BC B 10 Of the following choices, which could have shifted Kevin's budget constraint from BC₁ to BC2? Check all that apply. The price of symphony tickets increased while his income and the price of baseball tickets stayed the same. His income increased while the prices of baseball and symphony tickets stayed the same. The prices of both baseball and symphony tickets increased while his income stayed the same. His income decreased while the prices of baseball and symphony…A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup O’ Soup for $1.50 per meal. Hisweekly food budget is $60. Draw the budget constraint showing the trade-off between dining hall meals and Cups O’ Soup. Assuming that he spends equal amounts on both goods, draw an indifference curve showing theoptimum choice. Label the optimum as point A.Suppose the price of a Cup O’ Soup now rises to $2. Using your diagram from part (a), show the consequences of this change in price. Assume that our student now spends only 30 percent of his income on dining hall meals. Label the new optimum as point B.Lorenzo enjoys going to the theater to see plays, and he also enjoys going to rock concerts. The following diagram shows two of Lorenzo's indifference curves for going to plays and concerts. With Lorenzo's initial budget constraint (BC1), he chose to go to five concerts and three plays per month (point X). Then his budget constraint shifted to BC2, and he chose to go to four concerts and six plays per month (point Y). PLAYS 10 0 4 5 CONCERTS BC 8 Show Transcribed Text BC 10 C Of the following choices, which could have shifted Lorenzo's budget constraint from BC₁ to BC₂? Check all that apply. The price of theater tickets increased while his income and the price of concert tickets stayed the same. His income decreased while the prices of theater and concert tickets stayed the same. His income increased while the prices of theater and concert tickets stayed the same. The prices of both theater and concert tickets decreased while his income stayed the same. Based on Lorenzo's consumption…
- Yam has the following utility function for Apples (X1) and Ice Cream (X2), U(X1,X2) = Min{3X1,X2}. Yam likes to get more of both Apples and Ice Cream. Suppose Yam has an income of M = $160 budgeted to be spend on these two goods and the prices of Apples and Ice Cream are p1 =$2, p2 =$1. Yam's optimal consumption of Apples is and Ice Cream is (Please put your answer in numerical values with no comma or decimal place.) Suppose a quantity tax of $1 is imposed on Ice Cream. Yam's after tax optimal consumption of Apples is and Ice Cream is (Please put your answer in numerical values with no comma or decimal place.) Suppose instead of the quantity tax, the government choose to impose a lump-sum tax of $20. After the imposition of the lump-sum tax, Yam's optimal consumption of Apples is and Ice Cream is (Please put your answer in numerical values with no comma or decimal place.) If government would have to impose one of these 2 kinds of taxes, which of these types of tax would be better…Rick consumes 2 goods, Chicken McNuggets (M) with Szechuan sauce (S). His utility function is U(M, S) = M2/3S1/3 and his income is m. The price of Chicken McNuggets is p, and the price of Szechuan sauce is 1. g. On the same graph, show the (hypothetical) budget constraint that is tangent to the indifference curve from part (e) but parallel to the budget constraint in part (f). h. On the same graph, show the income and substitution effects of the increase in p from 1 to 2 on Rick’s consumption of Chicken McNuggets. Are Chicken McNuggets a normal or inferior good for Rick? Explain your answer. i. Find the equation representing the (hypothetical) budget constraint drawn in part (g). Hint: you know this budget constraint has the same prices as in part (f), so you need to find the income level m that makes the budget constraint just tangent to the indifference curve passing through Rick’s chosen consumption bundle in part (e).Imran consumes two goods, X1 and X2. his utility function takes the form: u(X1, X2)= 4(X1)^3+3(X2)^5. The price of X1 is Rs. 2 and the price of X2 is Rs. 4. Imran has allocated Rs. 1000 for the consumption of these two goods. (a) Fine the optimal bundle of these two goods that Imran would consume if he wants to maximize his utility. Note: write bundles in integers instead of decimals. (b) What is Imran's expenditure on X1? On X2? (c) Do you find more than one bundle satisfying the first order conditions? Why?
- Milo spends £27 on stamps (S) and maple candy (C). His preferences for these goods are given by the following utility function: U(S, C) = min (S, 3C). Suppose that price per unit of S is £1.1 and the price per unit of C is £2.1. a) Write down Milo's budget equation and draw the corresponding budget line. Clearly label the axes and calculate the coordinates of the points of intersection of the budget line with each axis. In your graph, indicate the consumption bundle of 12 stamps and 6 maple candies. Can Milo afford this bundle? Explain. b) Find Milo's optimal consumption bundle, both algebraically and graphically. Explain your reasoning. c) If the price of a stamp increases to £1.4, how should Milo's income change for him to be as well off as before this change in prices? d) Discuss the implications of the price change from c) on Milo's optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Milo's demand for stamps and/or maple candy.A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a cup of Ramen soup for $1.50 per meal, their weekly food budget is $60. Assume that they spend equal amounts on both goods. On the following graph, use the green line (triangle symbol) to draw the college student's budget constraint. Then use the black point (plus symbol) to indicate the initial optimum in this case. Cups of Ramen So 50 40 35 3O 15 0 O 2 . 6 610 12 14 Meals at Dining Hall 16 18 20 Initial Budget Constraint + Initial Optimum (A) New Budget Constraint New Optimum (B) Suppose the price of a cup of soup now rises to $2. Assume that the student now spends only 30 percent of their income on dining hall meals. (?) On the preceding graph, use the blue line (circle symbol) to draw the college student's new budget constraint. Then use the grey point (star symbol) to indicate the new optimum in this case. As a result of this price change, the quantity of Ramen soup cups consumed…Carol needs to decide how to spend her wealth on fish and chicken. For Carol, 1 lb of fish is equivalent to 2 lb of chicken. Her preferences can be represented by the utility function u(x; y) = 2x + y where x is the quantity of fish (in lbs) and y is the quantity of chicken (in lbs). The consumption set is R2+. a) Draw two typical indifference curves for Carol, one corresponding to a utility level of U1 and one corresponding to a utility level U2, where 0 < U1 < U2. Make sure you label the slope of the indifference curves and the intercepts with the horizontal and vertical axes. b) Suppose the price of fish is $1.5 per lb and and the price of chicken is $1 per lb. Carol has $20 to spend on fish and chicken. Draw Carol's budget set, labeling the slope and the intercept points clearly. How much fish and chicken will Carol choose to purchase?
