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Homework #1    John Q. Public spends all of his income on gas and burgers. Draw...

Homework #1   

John Q. Public spends all of his income on gas and burgers. Draw his budget constraint for these products when the following are true:

  • Graph A: his income is $150, the cost of a gallon of gas is $3 and a cost of a burger is $5.
  • Graph B: his income is $210, the cost of a gallon of gas is $3 and a cost of a burger is $5.
  • Graph C: his income is $150, the cost of a gallon of gas is $5 and a cost of a burger is $5.
  • Add an indifference map into graph A. How many gallons of gas and how many burgers will he buy to be at equilibrium?
  • Add an indifference map into graph B. How many gallons of gas and how many burgers will he buy to be at equilibrium?
  • Add an indifference map into graph C. How many gallons of gas and how many burgers will he buy to be at equilibrium?
  • Does the equilibrium level of gallons of gas and number of burgers change due to the changes in income and costs?
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