Microeconomics
5th Edition
ISBN: 9781118572276
Author: David Besanko
Publisher: WILEY
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Chapter 3, Problem 11RE
To determine
To evaluate:
The consumer's
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EXERCISE 3
If Joe decides to allocate his entire weekly allowance between energy drinks and coffee, he could afford 9 energy drinks and 3 cups of coffee, or 6 cups of coffee and 2 energy drinks. Suppose a cup of coffee costs £2.80.
Calculate the price of an energy drink and Joe’s weekly allowance. Write down Joe’s budget equation and draw the corresponding budget line. Mark the two consumption bundles mentioned above. In your graph, clearly label the axes, the budget line, and calculate the coordinates of the points of intersection of the budget line with each axis. Interpret each of those points.
Discuss how Joe’s budget set would change if his allowance was reduced by £5.20 a week. Show the relevant changes graphically. How should the price of coffee change so that Joe could still afford to buy 6 cups of coffee and 2 energy drinks?
Discuss how Joe’s budget constraint would change if the government subsidised consumption of coffee by £0.50 per cup of coffee.
If Joe decides to allocate his entire weekly allowance between energy drinks and coffee,
he could afford 9 energy drinks and 3 cups of coffee, or 6 cups of coffee and 2 energy
drinks. Suppose a cup of coffee costs £2.80.
a) Calculate the price of an energy drink and Joe's weekly allowance. Write down
Joe's budget equation and draw the corresponding budget line. Mark the two
consumption bundles mentioned above. In your graph, clearly label the axes, the
budget line, and calculate the coordinates of the points of intersection of the
budget line with each axis. Interpret each of those points.
b) Discuss how Joe's budget set would change if his allowance was reduced by £5.20
a week. Show the relevant changes graphically. How should the price of coffee
change so that Joe could still afford to buy 6 cups of coffee and 2 energy drinks?
c) Discuss how Joe's budget constraint would change if the government subsidised
consumption of coffee by £0.50 per cup of coffee.
4. John has a utility for the quantity of sandwiches, Xs, and quantity of burgers, Xp, that he
consumes, represented by the following equation:
U(X,X) = XX
His income is Y = $24. The price of a sandwich changes from X, = $1 to X, = $4 while
the price of a burger remains at X, = $6. Solve for the compensating variation and
equivalent variation associated with this price increase.
Chapter 3 Solutions
Microeconomics
Ch. 3 - Prob. 1RECh. 3 - Prob. 2RECh. 3 - Prob. 3RECh. 3 - Prob. 4RECh. 3 - Prob. 5RECh. 3 - Prob. 6RECh. 3 - Prob. 7RECh. 3 - Prob. 8RECh. 3 - Prob. 9RECh. 3 - Prob. 10RE
Ch. 3 - Prob. 11RECh. 3 - Prob. 3.1PCh. 3 - Prob. 3.2PCh. 3 - Prob. 3.3PCh. 3 - Prob. 3.4PCh. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Prob. 3.7PCh. 3 - Prob. 3.8PCh. 3 - Prob. 3.9PCh. 3 - Prob. 3.10PCh. 3 - Prob. 3.11PCh. 3 - Prob. 3.12PCh. 3 - Prob. 3.13PCh. 3 - Prob. 3.14PCh. 3 - Prob. 3.15PCh. 3 - Prob. 3.16PCh. 3 - Prob. 3.17PCh. 3 - Prob. 3.18PCh. 3 - Prob. 3.19PCh. 3 - Prob. 3.20PCh. 3 - Prob. 3.21PCh. 3 - Prob. 3.22PCh. 3 - Prob. 3.23PCh. 3 - Prob. 3.24PCh. 3 - Prob. 3.25PCh. 3 - Prob. 3.26P
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