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• ### PROBLEM SET 2 Due Date: Sunday September 13 1. You have an income of \$50 to... PROBLEM SET 2 Due Date: Sunday September 13 1. You have an income of \$50 to spend on two commodities. Commodity 1 costs \$10 per unit, and commodity 2 costs \$5 per unit. (a) Write down your budget equation. (b) If you spend all your income on commodity 1, how much could you buy? (c) What if you spend all your income on commodity 2? (d) Suppose that the price of commodity 1 falls to \$5 while everything else stays...

• ### You have \$150 to spend on food and clothing. The price of food and clothing are...

You have \$150 to spend on food and clothing. The price of food and clothing are \$5 and \$15 respectively. (a) Write down the equation for the budget line, and graph it. (b) Suppose that the government subsidizes clothing such that each unit of clothing is half-price, up to the rst 6 units of clothing. More than 6 units of clothing purchase is still priced at \$15 per unit. Write down the equation for the budget line under this subsidy,...

• ### Consider a consumer whose preferences over bundles of non-negative amounts of each of two commodities can... Consider a consumer whose preferences over bundles of non-negative amounts of each of two commodities can be represented by a utility function of the form U (, x2) - 4x +2 20x1 Suppose that this consumer is a price taker who faces a finite constant per-unit price for commodity The consumer is endowed with income of y. Throughout this question you may assume one of pi 0 and a finite constant per-unit price for commodity two of p2 > 0....

• ### 1) You make \$2,000 a month. You can spend this income on two goods: food, which... 1) You make \$2,000 a month. You can spend this income on two goods: food, which costs \$10 a unit; and "all other goods" which costs \$5 a unit. a) Draw your budget constraint for a given month in a graph. Be sure to label all relevant points (y-intercept, x-intercept and slope) on the graph with their values. b) Shade in the area that you could possibly choose given your budget. Write a few sentences explaining why that area is...

• ### 2. Suppose that a consumer has income of \$12 to spend on and r2. Also suppose... 2. Suppose that a consumer has income of \$12 to spend on and r2. Also suppose that the price of 띠 is \$2 per unit and the price of x2 is \$1 per unit. You will be asked to draw the three budget line in one diagram. Please label each (as (a), (b) and (c) carefully (a) Draw the consumer's budget line on a diagram where a is on the horizontal axis and r2 is on the vertical axis. the...

• ### The (identical) citizens of Boomtown have \$2 million to spend either on park maintenance or private...

The (identical) citizens of Boomtown have \$2 million to spend either on park maintenance or private goods. Each unit of park maintenance costs \$10,000. (a) Graph Boomtownís budget constraint. (b) Suppose that Boomtown chooses to purchase 100 units of park maintenance. Draw the town's indifference curve for this choice. (c) Now suppose that the state government decides to subsidize Boomtown's purchase of park maintenance by providing the town with 1 unit of maintenance for every 2 units the town purchases....

• ### 1. The price of elasticity of demand for a commodity is -2. What would be the...

1. The price of elasticity of demand for a commodity is -2. What would be the change in quantity demanded, if price increases by 30 %? 2. A decrease in cost of producing X per unit reduces the price of X per unit. As a result, the demand for good Y increases. Are good X and Y complements, substitutes, both, or neither? 3. Suppose a recent research finds that an increase in consumption of a good reduces the risk of...

• ### A consumer has an income of \$1,000 to spend on food and medicine. The price of... A consumer has an income of \$1,000 to spend on food and medicine. The price of one unit of food is \$5 and the price of one unit of medicine is \$10. For each question, write down the mathematical expression of the budget constraint and draw it carefully. Put food on the x-axis and medicine on the y-axis. Label the incercepts, slopes, and kinks. 1. Suppose the consumer receives coupons for 50 units of food and those can only be...

• ### 1- Suppose that a firm producing commodity with the following production function: Y = 20X,X2 Then,... 1- Suppose that a firm producing commodity with the following production function: Y = 20X,X2 Then, assume that the maximum amount the firm can spend on these two inputs is \$100 and price of commodities are as follow: Xi = 4, X2 = 5 a. Use Lagrange Multiplier to determine the optimal production level at this firm. b. What is the meaning of shadow price? How you can interpret it using the solution of part a? 2- Assume the following...

• ### Q1. Suppose consumer consumes two goods, X and Y. The price of X is P x...

Q1. Suppose consumer consumes two goods, X and Y. The price of X is P x , price of Y is P Y and the consumer income is m. a. Derive and interpret the budget constraint and its slope. b. If slope is -3, how will you interpret it? c. Suppose a government wants to discourage the excessive consumption of X and decides to impose a tax t 1 if someone consume more than X 1 but less than X...