Microeconomics question

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EC 311 

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EC311: Intermediate Microeconomic Theory Written Homework 1 Due in class at 2 p.m.: Tuesday, October 14th For full credit show all your work. Q.1 Using a standard supply and demand graph in the market for hotdogs in the town of Pawnee, read the statement and use it to find whether there is an increase or decrease in supply or demand. 1.a Hotdogs are an inferior good. Income in Pawnee rises. Demonstrate the resulting change in supply or demand and state the change in equilibrium price and quantity. 1.b The price of pork rises. Pork is a major input in the production of hotdogs. Demonstrate the resulting change in supply or demand and state the change in equilibrium price and quantity. Q.2 Draw indifference maps that represent the following statements of preferences. Appropriately label axes and indifference curves. 2.a No matter how many Lattes or cups of Coffee I have, I always like 2 Lattes just as much as I like 3 cups of coffee. 2.b Every time I eat 3 slices of Pizza, I need to have exactly two cans of Coke with them. 2.c I like having 1 Cheeseburger with 3 orders of French Fries just as much as I like having 3 Cheeseburgers with 1 order of French Fries, but I would really like a balanced bundle more. 2.d I really like Steak, but if Salad comes with the Steak I will not eat the Salad. I will leave it to be thrown out. 1 Q.3 Stacy has a coffee shop budget of $40 a week. Every week she spends all of her money at Starbucks and consumes Veinte Frappuccinos with 4 extra pumps of white chocolate syrup (V) along with Pumpkin Frosted Scones (S). The veinte frappucinos with extra white chocolate are $8 (PV = 8) each while the pumpkin frosted scones are $4 (PS = 4). 3.a Diagram the budget constraint at current prices and income. Be sure to label the intercepts and calculate the slope. In the same diagram, demonstrate the change to the budget constraint resulting from the price of Veinte Fappuccinos falling to 2 dollars (PV0 = 2). 3.b Diagram the budget constraint at original prices and income (before part a). Be sure to label the intercepts and calculate the slope. In the same diagram, demonstrate the change to the budget constraint resulting from fall of income to $32 (M 0 = 32). Q.4 A given consumer has a utility function of: U (X, Y ) = ln(X) + ln(Y ) And a budget constraint of: 3X + 5Y = 60 Find the best feasible bundle for this consumer. Q.5 A given consumer has a utility function of: U (X, Y ) = min{X, Y } (perfect compliments) And a budget constraint of: 2X + Y = 21 Find the best feasible bundle for this consumer. 2 EC311: Intermediate Microeconomic Theory Written Homework 1 Due in class at 2 p.m.: Tuesday, October 14th For full credit show all your work. Q.1 Using a standard supply and demand graph in the market for hotdogs in the town of Pawnee, read the statement and use it to find whether there is an increase or decrease in supply or demand. 1.a Hotdogs are an inferior good. Income in Pawnee rises. Demonstrate the resulting change in supply or demand and state the change in equilibrium price and quantity. 1.b The price of pork rises. Pork is a major input in the production of hotdogs. Demonstrate the resulting change in supply or demand and state the change in equilibrium price and quantity. Q.2 Draw indifference maps that represent the following statements of preferences. Appropriately label axes and indifference curves. 2.a No matter how many Lattes or cups of Coffee I have, I always like 2 Lattes just as much as I like 3 cups of coffee. 2.b Every time I eat 3 slices of Pizza, I need to have exactly two cans of Coke with them. 2.c I like having 1 Cheeseburger with 3 orders of French Fries just as much as I like having 3 Cheeseburgers with 1 order of French Fries, but I would really like a balanced bundle more. 2.d I really like Steak, but if Salad comes with the Steak I will not eat the Salad. I will leave it to be thrown out. 1 Q.3 Stacy has a coffee shop budget of $40 a week. Every week she spends all of her money at Starbucks and consumes Veinte Frappuccinos with 4 extra pumps of white chocolate syrup (V) along with Pumpkin Frosted Scones (S). The veinte frappucinos with extra white chocolate are $8 (PV = 8) each while the pumpkin frosted scones are $4 (PS = 4). 3.a Diagram the budget constraint at current prices and income. Be sure to label the intercepts and calculate the slope. In the same diagram, demonstrate the change to the budget constraint resulting from the price of Veinte Fappuccinos falling to 2 dollars (PV0 = 2). 3.b Diagram the budget constraint at original prices and income (before part a). Be sure to label the intercepts and calculate the slope. In the same diagram, demonstrate the change to the budget constraint resulting from fall of income to $32 (M 0 = 32). Q.4 A given consumer has a utility function of: U (X, Y ) = ln(X) + ln(Y ) And a budget constraint of: 3X + 5Y = 60 Find the best feasible bundle for this consumer. Q.5 A given consumer has a utility function of: U (X, Y ) = min{X, Y } (perfect compliments) And a budget constraint of: 2X + Y = 21 Find the best feasible bundle for this consumer. 2
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