Sara Sarah h divi divide dess her her inco income me onl only y on 2 pro produc ducts ts;; coff coffee ee and and bre bread ad (bo (both th are are nor norma mall good goods) s).. An extreme cold winter in the S causes a large increase in the price of wheat and subse!uently bread in "alaysia. (a) #raw the effect effect of the extreme extreme cold winter on Sarah$s budget constraint. (b) #raw the effect of the extreme cold winter on Sarah$s Sarah$s consumption consumption preferences preferences assuming that the substitution effect outweighs the income effect for coffee. co ffee. (c) #raw the effect effect of the extreme extreme cold winter on Sarah$s Sarah$s consumption consumption preferences preferences assuming that the inco me effect outweighs the substitution effect for co ffee.
2.
Assu Assume me %oh %ohan an buy buyss only only mil mil& & and and clot clothi hing. ng. 'n year year 1 %oh %ohan an ear earns ns "1 "1 *** *** mil& mil& cos costs ts "1* per litre and clothing costs "+ per yard. (a) #raw %ohan$s %ohan$s budget constra constraint. int. (b) #raw %ohan$s optimal combination of mil& and clothing in year year 1. Assume in year 2 overall price increases b y 1*, and %ohan$s salary increases by 12,. (c) #raw %ohan$s %ohan$s new budget constr constraint. aint. (d) #raw %ohan$s optimal combination of mil& and clothing in year year 2. (e) -ompare -ompare between the optimal optimal combinati combination on in year 1 and year 2.
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A col colle lege ge stu studen dentt has has 2 opti options ons for for meal meals/ s/ eat eatin ing g at Ar&ed r&ed for for "+ "+ per per meal meal or or eati eating ng at cafeteria for "0 per meal. he student wee&ly food budget is "*. Assume that the student spends e!ual amount on both options. (a) #raw the budget constraint constraint showing showing the trade3off trade3off between between eating at Ar&ed and eating at the cafeteria for the college co llege student. (b) #raw the indifference curve curve showing the optimum choice. 4abel the the point as A. A. (c) Assume Assume the price of meal at the cafeteria cafeteria increases increases to "0.+* per meal. se the diagram in part (a) show the effect of this price changes on the student$s optimal combination. Assume the student now only use *, of his income to eat at Ar&ed. 4abel the new optimum as 5. (d) 6xplain 6xplain the effect of the price changes changes to the !uantity demanded demanded of meal at the cafeteria using the substitution and income effects.
0.
#aniel is a diligent student who loves getting As but also loves playing video games. #aniel is awa&e for 1** hours each wee&. Studying and playing games are his only 2 activities. #aniel must study for 2* hours per wee& for every A he earns. 6ach game is 2 hours long. (a) #raw #aniel$s budget constraint that shows the trade3off between the number of As he can receive and the number of games he can play. (b) sing the diagram in (a) draw an indifference curve that show his optimal combination of studying and games playing assuming that he is happiest when he earns As. 7ow many games does he play each wee&8
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9ith a new semester beginning #aniel decides to get his difficult re!uirements out of the way. 6ach class now re!uires him to study for 2+ hours per wee& to get an A. (a) #raw the new budget constraint for #aniel. (b) #raw one possible optimal combination on the diagram in (a). (c) 6xplain how will the relative strengths of the income and substitution effects determine whether #aniel ma&es better or worse grades and whether he plays more or fewer games.
