David receives $3 a month as an allowance to spend as he pleases.
Since he only likes peanut butter and jelly sandwiches, he spends the entire
amount on peanut butter (at $0.05 per ounce) and jelly (at $0.1 per ounce).
The bread is provided free of charge by an interested neighbor. David is a picky eater
and makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of
peanut butter. He is set in his ways and will never change these proportions.
a) How much peanuts and jelly will David buy with his $3 per
week allowance?
b) Suppose the price of jelly increases to $0.15 per ounce. How much of each
merchandise would be purchased?
c) How much must David's allowance be increased to compensate for
the increase in the price of jelly in part b?
d) Graph your results from part a to part c.
e) In what sense does this problem refer to a single commodity? I graph
the demand curve for this single good.
f) Discuss the results of this problem in terms of income and substitution

Answer rating: 100% (QA)

Davids Peanut Butter and Jelly Problem a Purchases with 3 Allowance Cost per Sandwich Peanut Butter 2 ounces 005ounce 010 Jelly 1 ounce 010ounce 010 T... View the full answer