Question

1.) For this exercise you will need to first build a graph to these specifications: Draw a budget constraint with vertical intercept (0,8) and horizontal intercept (4,0). Zach’s indifference curves are downward sloping straight lines with a slope of -1 i.e. they all have vertical intercept (0,N) and horizontal intercept (N,0) for some number N. Draw Zach’s indifference curves. Label the bundle(s) that Zach will consume when optimizing.

2.) Now suppose the price of the “x-good” falls to become 4 times smaller than it was originally. Draw Zach’s new budget constraint. Draw in Zach’s indifference curves and label the new optimal bundle(s). Interpret Zach’s indifference curves: are the good substitutes or complements to Zach?

3.) Emily likes pretzels and Pepsi. She bought 12 bottles of Pepsi for $3 each. Her marginal utility for the twelfth bottle was 9 utils. She also bought 5 bags of pretzels for $4 per bag. Her marginal utility for the fifth bag was 8 utils. Assume Emily exhausted her budget on this purchase of Pepsi and pretzels, but wanted to maximize her utility. Would she have been better off buying more Pepsi and fewer pretzels, more pretzels and less Pepsi, or was her purchase already optimal? Assuming her marginal utilities are constant across all levels of consumption. Are pretzels and Pepsi complements or substitutes to Emily?

Answer #1

1)

2)

3)

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responses model clear economic reasoning and addresses each of the
following:
1.) For this exercise you will need to first build a graph to
these specifications: Draw a budget constraint with vertical
intercept (0,8) and horizontal intercept (4,0). Zach’s indifference
curves are downward sloping...

For this exercise you will need to first build a graph to these
specifications: Draw a downward sloping demand curve with vertical
intercept (0,150) and horizontal intercept (25,0). Draw a supply
curve with vertical intercept (0,50) and with slope=4 i.e. the
market equilibrium occurs at (10, 90).
a. Compute consumer, producer, and total surplus at the market
equilibrium.
b. Label consumer surplus and producer surplus if the government
imposes a price floor of $120, then compute
deadweight loss.
c. Compute...

1. A consumer has the utility function U = min(2X, 5Y ). The
budget constraint isPXX+PYY =I.
(a) Given the consumer’s utility function, how does the consumer
view these two goods? In other words, are they perfect substitutes,
perfect complements, or are somewhat substitutable? (2 points)
(b) Solve for the consumer’s demand functions, X∗ and Y ∗. (5
points)
(c) Assume PX = 3, PY = 2, and I = 200. What is the consumer’s
optimal bundle?
(2 points)
2....

Suzie, a former actress, spends all her income doing the two
things she loves: attending plays and going to movies. Plays and
movies are perfect substitutes for Suzie and she likes plays
exactly twice as much as she likes movies.
a. (Use one color) Carefully draw her indifference map (at least
two indifference curves) with plays on the vertical axis and movies
on the horizontal axis). Label them such that U2>U1. You can use
increments of 2 on the axes....

1. A new ________ that is parallel to the first one, but just
tangent to the new indifference curve, will reveal the real-income
effect.
maximization point
perfect substitute curve
perfect complement curve
budget constraint line
indifference curve
2. Marginal utility
occurs when total utility declines as consumption
increases.
is the additional satisfaction derived from consuming one more
unit of a good or service.
is the combination of goods and services that maximizes utility
for a given income.
occurs when a...

Charlie likes buying shoes and going out to sing. His utility
function for pairs of shoes, S, and the number of times he goes
singing per month, T, is U(S,T)=2S^2T^2 . It costs Charlie $50 to
buy a new pair of shoes or to spend an evening out singing. Assume
that he has $500 to spend on shoes and singing.
a. What is the equation for her budget line? Draw the budget
constraint with the T on the vertical axis,...

jane has $36 per week to spend on burgers (B) and milkshakes
(M). The price of a burger is $4 and milkshakes are $3
.a.Write the equation for Jane’s budget constraint
.b.Graph Jane’s budget constraint with burgers on the horizontal
axis. Be sure to label both the x-intercept and the y-intercept
with the proper value.
c.If Jane spends all of her money on these two goods, how many
milkshakes can she buy if she buys three burgers this week?
d.Draw...

Jane has $36 per week to spend on burgers (B) and milkshakes
(M). The price of a burger is $4 and milkshakes are $3.
a. Write the equation for Jane’s budget constraint.
b.Graph Jane’s budget constraint with burgers on the horizontal
axis. Be sure to label both the x-intercept and the y-intercept
with the proper value.
c.If Jane spends all of her money on these two goods, how many
milkshakes can she buy if she buys three burgers this week?...

1/ Paula, a former actress, spends all her income attending
plays and movies and likes plays exactly three times as much as she
likes movies. (Plays and movies are one for three substitutes) (40
points)
Draw her indifference map.
Paula has $120/wk budget for entertainment (watching plays and
movies). If play tickets cost $12 each and movie tickets cost $5
each, show her budget line and highest attainable curve. How many
plays and how many movies will she see?
2/...

3. Nora enjoys fish (F) and chips(C). Her utility function is
U(C, F) = 2CF. Her income is B per month. The price of fish is
PF and the price of chips is PC. Place fish
on the horizontal axis and chips on the vertical axis in the
diagrams involving indifference curves and budget lines.
(a) What is the equation for Nora’s budget line?
(b) The marginal utility of fish is MUF = 2C and the
Marginal utility of chips...

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