Suppose that UTM students only buy two goods: (i) Textbooks and (ii) Pens. The cost of...

 

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Suppose that UTM students only buy two goods: (i) Textbooks and (ii) Pens. The cost of a Textbook is $80 each. The cost of a pen is $4 each. Suppose that students have $600 to spend. 1. Draw the budget constraint for this problem. For full credit, be sure to label the y-intercept and x-intercept. Draw this with textbooks on the x-axis and pens on the y-axis. Now suppose that the price of Textbooks increases from $80 to $100 per unit. 2. Draw the change in the Budget Constraint resulting from this price change? Again, draw this with textbooks on the x-axis and pens on the y-axis. What is the new x-intercept and y- intercept? 3. Did the slope increase or decrease as a result of this price change? Would your answer change if textbooks were instead on the y-axis and pens on the x-axis? Explain your answer. Finally, suppose that UTM decides to offer all students up to 30 free pens to help in their studies. They may have as many as they want, up to the maximum of 30 pens. Any pens after that, they would need to purchase at the standard $4 per unit. Assume that the price of textbooks remains at $80 per unit for Q4 below. 4. Draw the students' new budget constraint with this free-pen scheme in place? Again, draw this with textbooks on the x-axis and pens on the y-axis. Again, for full credit, be sure to label the y-intercept, x-intercept, and kink in the budget constraint, including the quantity of textbooks and pens purchased at each. [4 points] [Hint: there will necessarily be a kink in this budget constraint. For full credit, you must label this kink and give the number of textbooks and pens at this kink.] Suppose that UTM students only buy two goods: (i) Textbooks and (ii) Pens. The cost of a Textbook is $80 each. The cost of a pen is $4 each. Suppose that students have $600 to spend. 1. Draw the budget constraint for this problem. For full credit, be sure to label the y-intercept and x-intercept. Draw this with textbooks on the x-axis and pens on the y-axis. Now suppose that the price of Textbooks increases from $80 to $100 per unit. 2. Draw the change in the Budget Constraint resulting from this price change? Again, draw this with textbooks on the x-axis and pens on the y-axis. What is the new x-intercept and y- intercept? 3. Did the slope increase or decrease as a result of this price change? Would your answer change if textbooks were instead on the y-axis and pens on the x-axis? Explain your answer. Finally, suppose that UTM decides to offer all students up to 30 free pens to help in their studies. They may have as many as they want, up to the maximum of 30 pens. Any pens after that, they would need to purchase at the standard $4 per unit. Assume that the price of textbooks remains at $80 per unit for Q4 below. 4. Draw the students' new budget constraint with this free-pen scheme in place? Again, draw this with textbooks on the x-axis and pens on the y-axis. Again, for full credit, be sure to label the y-intercept, x-intercept, and kink in the budget constraint, including the quantity of textbooks and pens purchased at each. [4 points] [Hint: there will necessarily be a kink in this budget constraint. For full credit, you must label this kink and give the number of textbooks and pens at this kink.]

Answer rating: 100% (QA)

Budget Constraint and Price Change 1 Initial Budget Constraint Textbooks on the Xaxis Quantity Pens on the Yaxis Quantity Budget 600 Textbook price 80 ... View the full answer