Mrs. Rochester earns $4500 a week and spends her entire income on computers and pastries, since these are the only two items that provide her utility. Furthermore, Mrs. Rochester insists that for every computer she buys, she must also buy a pastry.  A) Suppose the price of pastries increases to $20 and income decreases to $3200. What is the new algebraic equation for Mrs. Rochester’s budget constraint? Show the impact of the new budget line relative to the original budget line.  B) What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.  D) Assume for this question only that when the price of computers decreases, less of that good is demanded. Illustrate the income and substitution effect of this price decrease.

Sally consumes two goods, X and Y. Her utility function is given by the expression U = 2XY3. The current market price for X is $20, while the market price for Y is $10. Sally's current income is $500. a. Write the equation for Sally's budget constraint. What is the slope of her budget line? b. Determine the X,Y combination which maximizes Sally's utility, given her budget constraint.

The table below represents Sue’s preferences for bottled water and soft drinks, the combination of which yields the same level of utility.   Combination of Bottled Water and Soft Drinks Bottled Water per Month Soft Drinks per Month A 5 11 B 10 7 C 15 4 D 20 2 E 25 1   Calculate Sue’s marginal rate of substitution of soft drinks for bottled water at each rate of consumption of water (or soft drinks). Relate the marginal rate of substitution to marginal utility.

Suppose Lorenzo has a weekly budget of $48 to spend on ranch dressing and peanut butter. Ranch dressing is priced at $4 per bottle, and peanut butter is priced at $6 per jar. If Lorenzo spends his entire $48 on ranch dressing, he can buy jars of peanut butter. buy Use the blue line (circle symbol) to plot Lorenzo's budget constraint on the following graph. Next, use the orange point (square symbol) to shade the area that represents combinations of ranch dressing and peanut butter that are affordable for Lorenzo. Finally, place the black point (plus symbol) on the point on Lorenzo's budget constraint that corresponds to a scenario in which Lorenzo spends $24 on each good. Note: Dashed drop lines will automatically extend to both axes. PEANUT BUTTER (Jars) 24 22 20 18 2 0 + 0 2 4 12 14 16 18 20 22 bottles of ranch dressing. If he spends his entire $48 on peanut butter, he can 6 8 RANCH DRESSING (Bottles) O True False BC, ($48) O Affordable Region $24 on Each What does the slope of…