EBK MICROECONOMICS
5th Edition
ISBN: 9781118883228
Author: David
Publisher: YUZU
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Question
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.
A consumer buys Bread (B) and Milk (M) each week at prices of Rs. 10 and Rs. 8 respectively. Suppose
that the consumer's current consumption of Bread and Milk is giving him MUBrend = 80 and MUMia = 70.
Is the consumer buying the utility-maximizing combination of bread and milk? If not, how should he
reallocate his expenditures between the two goods to maximize utility? Draw diagram and explain.
Chapter 3 Solutions
EBK 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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Similar questions
- Alex wants to maximize his utility. At his current level of consumption, Alex's marginal utility from an aditional cup of coffe is 15 utils, and his marginal utility from an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and the price of a can of soda is 32. Alex Should:arrow_forward4. 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.arrow_forward
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