Question

a) Given the following demand function for beef (kg), P = 100 -2Q

i)By how much would the price have to fall for consumers to be willing to buy 1 more kg of beef per day? [5 marks]

ii)If the price decreases by N$0.7, by how much will the demand changed? [5 marks]

b) Define marginal utility. Provide an argument why to maximize total utility of good x and good y, the consumer should consume until the ratio of marginal utilities over price is the same across both goods. [6 marks]

c) Consider John who consumes two goods, (X and Y), with prices P_x = N$24, P_y = 12 and Income I = 120

d)Construct budget constraint [3 marks]

e)Draw John's budget line with good X on the horizontal axis. [3 marks]

f)Use a graph to show the effect of an increase in income from N$120 to N$150. [3 marks]

g)What will happen to the slope of the budget line if the price of good X decreases to N$18? [5 m