Sam has an income of $20 and would like to buy a combination of apples and...
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Sam has an income of $20 and would like to buy a combination of apples and oranges. Apples cost $2 each, oranges $1 each. a) draw a budget constraint that reflects these prices and the income (5 points) b) what happens if the price of oranges doubles to $2? Draw a new budget constraint into the same graph (5 points) c) draw the graph for a) once more and add a standard indifference map, which represents neither perfect substitutes nor perfect complements. Indicate the utility-maximizing solution on your graph. (5 points) d) Assume that the marginal utility of apples is at 10 and the marginal utility of oranges is at 8. Given the prices and the budget for part a), what should Sam do to maximize utility? Explain briefly (5 points) A Sam has an income of $20 and would like to buy a combination of apples and oranges. Apples cost $2 each, oranges $1 each. a) draw a budget constraint that reflects these prices and the income (5 points) b) what happens if the price of oranges doubles to $2? Draw a new budget constraint into the same graph (5 points) c) draw the graph for a) once more and add a standard indifference map, which represents neither perfect substitutes nor perfect complements. Indicate the utility-maximizing solution on your graph. (5 points) d) Assume that the marginal utility of apples is at 10 and the marginal utility of oranges is at 8. Given the prices and the budget for part a), what should Sam do to maximize utility? Explain briefly (5 points) A
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Sams Budget Constraint and Utility a Budget Constraint Income 20 Price of Apples 2 Price of Oranges 1 This budget constraint can be represented by the ... View the full answer
Related Book For
Macroeconomics Principles Applications And Tools
ISBN: 9780134089034
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
Posted Date:
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