201-2008_ps_1 - 1. Budget constraint. Barbara has $150 to...

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1. Budget constraint. Barbara has $150 to spend on books and phone calls. Each book costs $15 and a typical phone call costs her $5. a. Draw her budget constraint. b. What is its slope? c. Explain the economic significance of the slope. d. Suppose that both prices double and that her spending money also doubles. e. Draw her new budget constraint. 2. Time constraint. Sam Smudge is looking for corruption in the State government. His editor has given him 40 hours to search. He can audit travel reports, which take 1 hours each to complete, or interview potential whistle blowers, which requires 4 hours each. a. Draw his budget constraint. b. What is its slope? c. Explain the economic significance of the slope. 3. Multiple constraints. Continuing with problem two, we see that Sam must pay $10 (processing fees) for each travel audit and $10 (lunch) for each interview. His budget is $200. a. Draw his complete opportunity set.
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This note was uploaded on 04/15/2008 for the course ECON 201 taught by Professor C.liedholm during the Spring '07 term at Michigan State University.

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