Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 5.A, Problem 1TY
(a)
To determine
Construct a budget line at income $100 and price $2 for each unit of Taco and Hot Dogs.
(b)
To determine
Construct a budget line at income $150 and price $2 for each unit of Taco and Hot Dogs.
(c)
To determine
Construct budget line at income $100 and price $2 is for Hot Dogs and $2.50 is for Taco.
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6. You consume only coke and pasta. One day, the price of coke goes up, the price of pasta goes down, and you are just as happy as you were before the price changes.
a. Illustrate this situation on a graph.
b. How does your consumption of the two goods change? How does your response depend on income and price effects?
c. Can you afford the bundle of coke and pasta you consumed before the price changes?
Question 4
A consumer has income of $15,000. Masks costs $35 per mask, and sanitizers costs $70 per bottle.
Draw the consumer’s budget constraint (put mask on the horizontal axis). What is the slope of this budget constraint?
Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both masks and sanitizers are normal goods. Illustrate what happens if a mask is an inferior good.
The price of masks rises from $35 to $40 per mask, while the price of sanitizers is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects.
Under what circumstance(s) if any can an increase in the price of sanitizers induce a consumer to buy more of that good? Explain.
Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.
(Answers…
Question 4
A consumer has income of $15,000. Masks costs $35 per mask, and sanitizers costs $70 per bottle.
Draw the consumer’s budget constraint (put mask on the horizontal axis). What is the slope of this budget constraint?
Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both masks and sanitizers are normal goods. Illustrate what happens if a mask is an inferior good.
The price of masks rises from $35 to $40 per mask, while the price of sanitizers is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects.
Under what circumstance(s) if any can an increase in the price of sanitizers induce a consumer to buy more of that good? Explain.
Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.
Chapter 5 Solutions
Economics: Principles & Policy
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Similar questions
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- The only goods you buy are apples and oranges. Both apples and oranges sell for $1 a piece, and your income is $10 a day. a. Draw your budget line.arrow_forwardThe diagram shows Sam's budget line. Sam's budget line shows 40 16 4 8. 12 16 20 24 Coffee (pounds per week) O A. which combinations of gasoline and coffee Sam can afford. B. which combinations of gasoline and coffee Sam is planning to purchase. OC. whether or not Sam thinks gasoline and coffee are worth their prices. OD. whether or not Sam currently has enough gasoline and enough coffee. 32 24 Gasoline (gallons per week)arrow_forward1. A person has $ 100 to spend on two goods X and Y whose respective prices are $3 and $5. a. Draw the budget line. b. What happens to the original budget line if the budget falls by 25%? c. What happens to the original budget line if the price of X doubles? d. What happens to the original budget line if the price of Y falls to $4?arrow_forward
- A consumer sets themselves a weekly budget of $15 for vegetables. They only eat carrots and peas. Peas cost $1.50 per pound and carrots cost $1.00 per pound. 2. Draw a budget line for the consumer showing his possible weekly consumption of peas and carrots. Label both axes with numbers and an axis title. Add a second line that shows what happens when carrots go on sale for $0.75 per pound. Upload your diagram. Please give typed answer ASAP with proper explanation of it. Will give you thumbs up only for the correct answer. Thank you .arrow_forwardHow does the law of diminishing marginal utility relate to changing income? Select one: a. The marginal benefit of an extra dollar of income rises as income rises. b. The marginal benefit of an extra dollar of income falls as income rises. c. The total utility gained from a small income is higher than the total utility gained from a high income. d. The total utility gained from a high income is higher than the total utility gained from a low income.arrow_forward2. Bobby, the brain, Heenan has income of $100. He consumes food (F) and clothes (C). His utility function is U = FC. The price of food and clothes is one dollar per unit. He initially consumes fifty units of each. a. Draw a graph showing his equilibrium. b. Assume that his income is $100. He receives a food stamp worth $50. Would he prefer $150 in money income or $100 in income and a $50 food stamp? Are they the same? Justify your answer. Provide a graph. c. Now suppose he gets a food stamp of $300. Is he indifferent between an income $100 and a food stamp of $300 as compared to a money income of $400 without food stamps? Graph your answer.arrow_forward
- Abby's marginal utility per dollar spent on bananas is 15 and her marginal utility per dollar spent on oranges is 10, how should she spend her income? She should purchase fewer oranges and more bananas. She should purchase an equal amount of oranges and bananas. She should purchase more oranges 'and fewer bananas. She should purchase more bananas and oranges.arrow_forward3. Larry lives with his parents and enjoys listening to jazz. Because of his living arrangements, his only expense is on jazz music. To earn money to buy new albums, Larry must work. Larry has 16 hours per day he could spend listening to jazz or working. Each hour he works he earns $6. Each album costs him $12. Diagram Larry's budget constraint for new jazz albums and time spent listening to jazz. If Larry's parents require him to spend two hours per day doing chores around the house, what happens to his budget constraint? Does the requirement to do chores make Larry worse off?arrow_forwardQuantity 1 2 3 4 5 880 750 770 Pizza Total utility 95 180 255 320 375 705 Quantity 1 Bobby spends $100 per month on pizza and CDs. His utility from these goods is shown in the table above. The price of a pizza is $10 and the price of a CD is $20. If Bobby maximizes utility from these goods, his total utility is units. 23 4 5 CDs Total utility 170 320 450 560 650arrow_forward
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