1. (a) Which causes a shortage of a good--- a price ceiling or a price floor? Justify your answer with a graph. (b) What is a budget constraint? A consumer has an income of $3000. Soda costs $3 per liter and cheese costs $6 per pound. Draw the consumer's budget constraint with soda on the vertical axis. What is the slope of this budget constraint?

1. (a) Which causes a shortage of a good--- a price ceiling or a price floor? Justify your answer with a graph. (b) What is a budget constraint? A consumer has an income of $3000. Soda costs $3 per liter and cheese costs $6 per pound. Draw the consumer's budget constraint with soda on the vertical axis. What is the slope of this budget constraint?

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1QR

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As a college student you work at a part-time job, but your parents also send you a monthly allowance. Suppose one month your parents forgot to send the check. Show graphically how your budget constraint is affected. Assuming you only buy normal goods, what would happen to your purchases of goods?
Figure#1 Pepsi Z. W Pizza Refer to Figure# 1. Which point in the figure showing a consumerâ s budget constraint represents the consumer's income divided by the price of a Pepsi?
- Suppose the price of Pizza is $10 the price of cola is $1, and the consumer's income is $60. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis. If the consumer's income rises to $100 while the prices of pizza and cola are constant, then the budget line for pizza and cola would ? a- not change b- now intersect the horizontal axis at 12 pizzas and the vertical: axis at 120 colas c- now intersect the horizontal axis at 10 pizzas and the vertical axis at 100 colas d- would rotate along the cola axis
-Suppose the price of Pizza is $10 the price of cola is $1, and the consumer's income is $60. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis. If the price of cola doubles to $2 while both the price of pizza is still $10, and the income is constant at $60 then the : a-Budget constraint intersects the vertical axis 30 colas b- Slope of the budget constraint rises to -5/2 c- Budget constraint intersects the horizontal axis at 25 pizzas d- budget constraint intersects the horizontal axis 5 pizzas I
17) A ssume a consumer has $40 to spend and for both products the marginal utilities are shown in the following table: Quantity MU MU 1 35 80 2 20 40 3 12 18 Assume that each product sells for $10 per unit. a) How many units of each product will the consumer purchase? b) Assume the price of product B rises to $20 per unit. How will this consumer allocate her budget now? c) If the prices of both products rise to $20 per unit, what will be the budget allocation?
Suppose Alex has income of $100 per month. He only consumes pizza and cell phone minutes. Illustrate Alex's budget constraint under each of the following conditions. a. Pizzas cost $10 each and cell phone service cost $0.10 per minute. b. Alex's service provider offers a quantity discount. After the first 600 minutes, the price per minute drops to $0.05. c. Alex's parents decide that he is not allowed to use more than 600 minutes of cell time per month. d. Under Alex's parents dictate, does he ever consume less than 4 pizzas? How do you know? e. Is it possible that without the mandate from his parents but with the discount phone plan available that Alex would ever consume less than 600 minutes of cell time per month? If so, why and if not why not? 1
18) Joe's budget constraint equals 500 = 2F + 100S, where $500 is Joe's income, $2 is theprice of food (F, y-axis) and $100 is the price of shelter (S, x-axis). How much food canJoe buy if he buys one unit of shelter?A) 2 unitsB) 200 unitsC) 250 unitsD) 400 unitsE) 300 units
4. Describe what is meant by a normal good. Provide a real-life example in your own words. What is an inferior good? How does a change in income impact the demand for inferior goods?
6. The figure below shows a consumer maximizing utility at two different prices (the left panel) and the consumer's demand for good X at the same two prices of good X (the right panel). The price of good Y is $4.50. When the price of X increases from point S to point R along the demand curve, the substitution effect of the price increase is and the income effect is Quantity of Y 60 48 B A 18 24 - Quantity of X Price of X 6 R S 24 Demand for X Quantity demanded of X Qa
Refer to Figure 1. Following figure shows the budget constraint for Leyla. Wwhen the price of shirts decrease consumption of shirts increase from 12 units to 20 units while the consumption of Sweaters do not change. What can be said about the relationship between shirts and sweaters for Leyla? Number of Sweaters 40 B 28 12 66 Number of Shirts 20 40 Select one: a.Sweaters are inferior for Leyla b.Both are substitutes for Leyla c.They are complements for Leyla d.Sweaters and Shirts are independent for Leyla
Question 4 A consumer has income of $15,000. Masks costs $35 per mask, and sanitizers costs $70 per bottle. Draw the consumer’s budget constraint (put mask on the horizontal axis). What is the slope of this budget constraint? Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both masks and sanitizers are normal goods. Illustrate what happens if a mask is an inferior good. The price of masks rises from $35 to $40 per mask, while the price of sanitizers is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. Under what circumstance(s) if any can an increase in the price of sanitizers induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation. (Answers…
Question 4 A consumer has income of $15,000. Masks costs $35 per mask, and sanitizers costs $70 per bottle. Draw the consumer’s budget constraint (put mask on the horizontal axis). What is the slope of this budget constraint? Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both masks and sanitizers are normal goods. Illustrate what happens if a mask is an inferior good. The price of masks rises from $35 to $40 per mask, while the price of sanitizers is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. Under what circumstance(s) if any can an increase in the price of sanitizers induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.