HW40 - Econ 1 Tang Fall Quarter 2007 Homework 4 Chapter 8...

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Econ 1: Tang Fall Quarter 2007 Homework 4: Chapter 8 Due Wednesday November 14, at the beginning of class. Please write your name, PID, and section number/TA name on your homework. 1. Suppose that Marvin is currently consuming 4 apples and 4 bananas. If the price of apples is .25 and Marvin spends \$6 on apples and bananas, then what is the price of bananas? 2. Every morning Kristen buys a bagel and a cup of coffee from Peabody’s. At Peabody’s the price of bagels is \$2.00 and the price of a cup of coffee is \$1.00. a. Assuming that Kristen has \$20 to spend on coffee and bagels, sketch her budget constraint, putting coffee on the x-axis and bagels on the y-axis. Clearly label a) the x-intercept, b) the y-intercept, c) and the slope of the budget constraint. b. Now, suppose that Peabody’s wants to encourage customer loyalty. To do so they start the following program: every time someone purchases 10 cups of coffee, they get the 11 th cup for free. Sketch Kristen’s new budget constraint under the assumption that she still has \$20 to spend on coffee. As above, put coffee on the x-axis and bagels on the y-axis.

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HW40 - Econ 1 Tang Fall Quarter 2007 Homework 4 Chapter 8...

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