3. A, Connie has monthly income of $120.that she allocates between two goods meat and potatoes....
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3. A, Connie has monthly income of $120.that she allocates between two goods meat and potatoes. If meat costs $6 per pound and potatoes cost $2 per pound, sketch the budget line. B, Suppose that Connie's supermarket also has a promotion so that the price of meat is $6 per pound but the price of potatoes depends on how many potatoes you buy. The first ten pounds cost $3 per pound, then the price of potatoes drops to $1 per pound. Show the budget line above. C, Sketch a consumer equilibrium model with the following properties: The budget available to spend on goods Y and X is $100. The Price of Good Y is $5. The Price of Good X is $10. The consumer has indifference curves that show a diminishing MRS That is, he is less and less willing to trade y for as the number of units of x increases. The consumer is currently at equilibrium where he consumes a positive amount of both Good X (called X*) and Good Y (called Y*). D, Using the above diagram, show what happens when income increases and one product is a normal good and another product is an inferior good. The income effect in this example causes X to increase, decrease, stay the same ) and Y to ( increase, decrease, stay the same) The substitution effect causes X to ( incr. dec. stay the same ) and Y to ( incr, dece, stay the same ). The final result is X increases, decreases, cannot tell) and Y ( increases, decreases, cannot tell) 3. A, Connie has monthly income of $120.that she allocates between two goods meat and potatoes. If meat costs $6 per pound and potatoes cost $2 per pound, sketch the budget line. B, Suppose that Connie's supermarket also has a promotion so that the price of meat is $6 per pound but the price of potatoes depends on how many potatoes you buy. The first ten pounds cost $3 per pound, then the price of potatoes drops to $1 per pound. Show the budget line above. C, Sketch a consumer equilibrium model with the following properties: The budget available to spend on goods Y and X is $100. The Price of Good Y is $5. The Price of Good X is $10. The consumer has indifference curves that show a diminishing MRS That is, he is less and less willing to trade y for as the number of units of x increases. The consumer is currently at equilibrium where he consumes a positive amount of both Good X (called X*) and Good Y (called Y*). D, Using the above diagram, show what happens when income increases and one product is a normal good and another product is an inferior good. The income effect in this example causes X to increase, decrease, stay the same ) and Y to ( increase, decrease, stay the same) The substitution effect causes X to ( incr. dec. stay the same ) and Y to ( incr, dece, stay the same ). The final result is X increases, decreases, cannot tell) and Y ( increases, decreases, cannot tell)
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