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ECON501HW2

# ECON501HW2 - 1 a Using the table below construct an Engel...

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1. a. Using the table below, construct an Engel curve for each type of beer. Beer Type Income less than \$20,000 Income \$20,000 to \$40,000 Income \$40,000 to \$60,000 Income \$60,000 to \$100,000 Domestic Beer 220 360 160 80 Premium Domestic Beer 20 140 200 240 Imported Beer 12 85 225 280 b. At an income above \$40,000, is domestic beer a normal or inferior good? 2. The diagram below depicts the change in optimal consumption bundles for Marty when the price of movie tickets falls. Decompose the change into the income and substitution effects. 3. Joe’s Pig Palace sells barbecue plates for \$4.50 each and serves an average of 525 customers per week. During a recent promotion, Joe cut his price to \$3.50 and observed an increase in sales to 600 plates per week. a. Calculate Joe’s arc price elasticity of demand. b. Joe is considering permanently lowering his price to \$4.00 to increase revenue. How many plates should Joe expect to sell at the new price? Does the move make sense in light of Joe’s desire to increase revenue?

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ECON501HW2 - 1 a Using the table below construct an Engel...

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