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Homework II
Principles of Microeconomics 1101 Lecture 017
Fall Semester – 2008
Mike Walrath
Due 10/06/08
Note:
Homework must be turned in at the end of lecture on Monday, 10/06/08 (see
syllabus for late homework policy).
Your homework must be in chronological order.
Answer questions in order and please
put all tables and graphs in the same area as
your answer
.
Type everything but graphs and calculations for full credit.
Label all
graphs for full credit.
Show all work.
Bonus Question
(5 points)
Write your TA’s name and section number on the top right
of the first page of your homework.
Question 1
(18 points)
Suppose Kate can only purchase Daewoo TV’s and Daewoo
VCR’s.
Kate has $1,000.
A Daewoo TV costs $125 and a Daewoo VCR costs $125.
(a)
Putting TV’s on the Yaxis, draw Kate’s budget constraint.
(b)
Illustrate Kate’s optimal consumption bundle (using indifference curves like those
seen in class).
Now suppose that Daewoo TV’s are inferior and Daewoo VCR’s are normal.
(c)
Now suppose the price of Daewoo VCR’s decreases to $100.
Graphically
illustrate the effects of this price change.
Clearly illustrate the income and
substitution effects.
Question 2
(18 points)
Suppose Liz can only purchase hot dogs and sandwiches.
Liz
has $20.
Hot dogs cost $1 and sandwiches cost $4.
(a)
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 Spring '08
 walrth
 Economics, Microeconomics

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