Suppose Coke and Pepsi are perfect substitutes for me, and right and left shoes are perfect complements.A. Suppose my income allocated to Coke/Pepsi consumption is $100 per month, and my income allocated to right/left shoe consumption is similarly $100 per month.a. Suppose Coke currently costs $0.50 per can and Pepsi costs $0.75 per can. Then the price of Coke goes up to $1 per can. Illustrate my original and my new optimal bundle with "Coke" on the horizontal and "Pepsi" on the vertical axis.b. Suppose right and left shoes are sold separately. If right and left shoes are originally both priced at $1, illustrate (on a graph with "right shoes" on the horizontal and "left shoes" on the vertical) my original and my new optimal bundle when the price of left shoes increases to $2.c. True or False: Perfect complements represent a unique special case of homothetic tastes in the following sense: Whether income goes up or whether the price of one of the goods falls, the optimal bundle will always lie on a the same ray emerging from the origin.B. Continue with the assumptions about tastes from part A.a. Write down two utility functions: one representing my tastes over Coke and Pepsi, another representing my tastes over right and left shoes. Suppose Coke and Pepsi are perfect substitutes for me, and right and left shoes are perfectcomplements.A. Suppose my income allocated to Coke/Pepsi consumption is $100 per month, and myincome allocated to right/left shoe consumption is similarly $100 per month.a. Suppose Coke currently costs $0.50 per can and Pepsi costs $0.75 per can.Then the price of Coke goes up to $1 per can. Illustrate my original and mynew optimal bundle with "Coke" on the horizontal and "Pepsi" on the verticalaxis.b. Suppose right and left shoes are sold separately. If right and left shoes areoriginally both priced at $1, illustrate (on a graph with "right shoes" on thehorizontal and "left shoes" on the vertical) my original and my new optimalbundle when the price of left shoes increases to $2.c. True or False: Perfect complements represent a unique special case ofhomothetic tastes in the following sense: Whether income goes up orwhether the price of one of the goods falls, the optimal bundle will always lieon a the same ray emerging from the origin.B. Continue with the assumptions about tastes from part A.a. Write down two utility functions: one representing my tastes over Cokeand Pepsi, another representing my tastes over right and left shoes.

In the realm of economics, there exist two categories of goods, namely perfect substitutes and…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose Coke and Pepsi are perfect substitutes for me, and right and left shoes are perfect complements. A. Suppose my income allocated to Coke/Pepsi consumption is $100 per month, and my income allocated to right/left shoe consumption is similarly $100 per month. a. Suppose Coke currently costs $0.50 per can and Pepsi costs $0.75 per can. Then the price of Coke goes up to $1 per can. Illustrate my original and my new optimal bundle with "Coke" on the horizontal and "Pepsi" on the vertical axis. b. Suppose right and left shoes are sold separately. If right and left shoes are originally both priced at $1, illustrate (on a graph with "right shoes" on the horizontal and "left shoes" on the vertical) my original and my new optimal bundle when the price of left shoes increases to $2. c. True or False: Perfect complements represent a unique special case of homothetic tastes in the following sense: Whether income goes up or whether the price of one of the goods falls, the optimal bundle will always lie on a the same ray emerging from the origin. B. Continue with the assumptions about tastes from part A. a. Write down two utility functions: one representing my tastes over Coke and Pepsi, another representing my tastes over right and left shoes.

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