Susan buys bagels and falafels. The price of a falafels is £1 and the price of a bagels is £3. Susan has £12 to spend on bagels and falafels. a) Draw Susan's budget constraint and a possible indifference curve. Explain the assumptions behind the shape of the indifference curve you have drawn. b)If the price of falafels falls to £0.80 each, how will this affect her purchases? Answer in words and graphically, clearly indicating income and substitution effects of the price change. c) If Susan only enjoys bagels and falafels when she has 2 falafels for every bagel that she eats, draw her indifference curves. How many bagels and falafels should she buy to maximise her utility? Assume Susan has £12, one falafel costs £0.80 and bagels costs £3 each.

Susan buys bagels and falafels. The price of a falafels is £1 and the price of a bagels is £3. Susan has £12 to spend on bagels and falafels. a) Draw Susan's budget constraint and a possible indifference curve. Explain the assumptions behind the shape of the indifference curve you have drawn. b)If the price of falafels falls to £0.80 each, how will this affect her purchases? Answer in words and graphically, clearly indicating income and substitution effects of the price change. c) If Susan only enjoys bagels and falafels when she has 2 falafels for every bagel that she eats, draw her indifference curves. How many bagels and falafels should she buy to maximise her utility? Assume Susan has £12, one falafel costs £0.80 and bagels costs £3 each.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Suppose that good X is on the x-axis and good Y is on the y-axis. Suppose that the consumer has an income of $256, the price of y is $18 and the price of x is $24. What is the slope of the budget line?
Lucia lives in Denver and enjoys drinking lattes and eating scones. The price of a latte is held constant at $4 throughout this problem. On the following graph, the purple curves (1₁ and 12) represent two of Lucia's indifference curves. The lines BC₁ and BC₂ show two budget constraints. Points X and Y show Lucia's optimum consumption bundles subject to these budget constraints. 20 18 16 14 12 10 8 6 4 ¹/₂ 2 0 2 4 10 16 18 20 SCONES Given the preceding graph and knowing the price of a latte is $4, Lucia's available income for lattes and scones is LATTES 0 Slope: -2 X-Intercept: 9 Y-Intercept: 18 6 BC 8 12 14 BC
Alex has a monthly budget of $72 to spend on commuter train trips and organic pasta. Each train trip costs $12; each box of pasta costs $6. Alex's preferences for train travel and pasta are represented by the indifference map on the following page. a. Determine which line (L1, L2, L*, or L**) represents Alex's budget constraint. b. Find their utility-maximizing bundle (E1, E2, e*, or e**). How many train trips will Alex take? Suppose the state government establishes a program to subsidize public transportation for commuters, such that each train trip now costs Alex $6. c. Determine which line (L1, L2, L*, or L**) represents Alex's new budget constraint. d. Find their new utility-maximizing bundle (E1, E2, e*, or e**). Determine how many train trips Alex will now take. e. Find the size and direction (positive or negative) of the substitution effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. f. Find…
Pam has a monthly budget of £120 to be spent on T-shirts and trainers. She could afford to buy two T-shirts and two pairs of trainers. She could also buy eight T-shirts. In each case, she would be spending her entire monthly allowance. Calculate the price of a T-shirt and the price of a pair of trainers. Write down Pam’s budget equation and draw the corresponding budget line. Mark the two consumption bundles mentioned above. In your graph, clearly label the axes, the budget line, and calculate the coordinates of the points of intersection of the budget line with each axis. Interpret each of those points. Discuss how Pam’s budget set would change if the price of a T-shirt doubles. Show the relevant changes graphically. How should Pam’s income change so that she could still afford to buy two T-shirts and two pairs of trainers? Discuss how Pam’s budget constraint would change if the government imposed a tax of £3 per each pair of trainers.
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.
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).
ONly parts D-G
1. In a simple but delicious world, Joey eats only sandwiches, s, and jam, j. He has a Cobb-Douglas utility function U(j, s) = Nj1-asª, where 0 0. The price of jam is pj, the price of sandwiches is Ps, and Joey has a monthly budget Y to spend on lunch. a. Explain why you can safely use a simpler Cobb-Douglas utility function, V(j, s), to represent Joey's preferences, which is the same as U(j, s) except for replacing N with 1. b. Transform V(j,s) by taking natural logs and bringing down exponents. Explain why it is useful to do this for a Cobb-Douglas utility function, but not for a quasi-linear utility function. Use In(V(j, s)) and the substitution method to derive the formulas for Joey's optimal amount of jam, j*, and sandwiches, s*, to buy and consume per month. Simplify your answers so that you arrive at the С. (1-a)Y aY formulas j* = and s* Ps d. What fraction of his income does Joey spend on jam, and what fraction on sandwiches?
Given above are some of the indifference curves for a student who consumes Burritos and Pizzas and the relevant budget line. Equilibrium is defined as the maximum utility or satisfaction given the consumer’s budget. The consumer has more indifference curves above I3, below I1, and between I1 and I2 and between I2 and I3. Out of all the indifference curves the consumer has, only I1, I2, and I3 are shown. The given budget line touches I2 at the point where I2 touches the y-axis (Burritos axis). a) If the price of Pizzas decreased and the price of Burritos remained unchanged, would the quantity of Burritos consumed at equilibrium increase or decrease compared to the equilibrium point A in the graph given above? (b) If the price of Pizzas increased and the price of Burritos remained the same, would the consumer equilibrium point be different from point A or the same as point A in the graph given above?
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?
The graph below shows the monetary rule curve for the country of HOYA. According to this rule, the Central Bank will react to a rise in the current inflation rate from 0.5% to 1.5% by 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0.2 0.4 0.6 0.8 1.2 1.4 1.6 1.8 inflation (n) Real federal funds rate (R) 2.
Troy has preferences for laptops (L), and drones (D). Laptops costs $750 a unit and drones costs $2000 a unit. Troy has $15000 to spend on both goods. 1. It is known that the indifference curve is convex. What does this tell you about the relationship between the goods?