Consider the market for Netflix Subscriptions. Show graphically and explain using economic intuition, what happens to the market price and quantity in each of the following
3. Bruno can spend his income on two different goods: smoothies and energy bars. For each of the following three situations, decide if the given consumption bundle is within Bruno’s consumption possibilities. Then decide if it lies on the budget line or not.
a) Smoothies cost $2 each, and energy bars cost $3 each. Bruno has income of $60. He is considering a consumption bundle containing 15 smoothies and 10 energy bars.
b) Smoothies cost $2 each, and energy bars cost $5 each. Bruno has income of $110. He is considering a consumption bundle containing 20 smoothies and 10 energy bars.
c) Smoothies cost $3 each, and energy bars cost $10 each. Bruno has income of $50. He is considering a consumption bundle containing 10 smoothies and 3 energy bars.
4. In each of the following situations, describe the substitution effect and, if it is significant, the income effect. In which direction does each of these effects move? Why?
a) Ed spends a large portion of his income on his children’s education. Because tuition fees rise, one of his children has to withdraw from college.
b) Homer spends much of his monthly income on home mortgage payments. The interest on his adjustable-rate mortgage falls, lowering his mortgage payments, and Homer decides to move to a larger house.
c) Pam thinks that Spam is an inferior good. Yet as the price of Spam rises, she decides to buy less of it.
5. Many colleges and universities are witnessing a shift in demographics due to women having fewer children today. The birth rate fell from an average of 2.1 births per woman in 2007 to 1.7 births in 2018. The declining birth rate will reduce the college age population by as much as 15% between
2025 and 2029. How will the declining birth rate affect university operations? Answer the questions below.
a) Do higher-education institutions have large or small fixed costs? What are the variable costs for colleges and universities?
b) Given your answer in part a, how would you describe short-run average total cost?
c) If universities are operating where short-run
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