Quiz 5 - 300 and the bundle chosen is(X = 150 Y = 300 When...

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Econ 302 Quiz 5 McLeod Name ______________________ ID# ___________________________ 1. (10 points) Suppose a consumer’s preferences are given by U(X,Y) = X*Y. Thus, the marginal utility of X, MUx = Y and the marginal utility of Y, MUy = X. Suppose the consumer has $600 to spend and the price of good Y is $1. On the back of this page, sketch the price-consumption curve for the prices of Px = $1, Px = $2 and Px = $5. To do this, carefully draw the budget constraints associated with each of the prices for good X, and indicate the bundle that the consumer chooses in each case. Also, be sure to label your graph accurately. All of the budget constraints should have a vertical intercept (Y-axis) of 600. When Px = $1, the horizontal intercept of the budget constraint (X-axis) should be 600, and the bundle chosen is (X = 300, Y = 300). When Px = $2, the horizontal intercept of the budget constraint (X-axis) should be
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Unformatted text preview: 300, and the bundle chosen is (X = 150, Y = 300). When Px = $5, the horizontal intercept of the budget constraint (X-axis) should be 120, and the bundle chosen is (X = 60, Y = 300). The PCC is the horizontal line that joins these bundles. 2. (6 points) Refer to the diagram below. Assuming the consumer has $10 to spend, identify three price/quantity combinations which are on the consumer’s demand curve for Snacks. Price of Snacks Quantity of Snacks $.25 10 $.5 7 $1 5 3. (4 points) What is being measured on the vertical and horizontal axes when graphing a) an Engel Curve? Income on the vertical axis, and quantity of good X on the horizontal axis. b) a price-consumption curve Quantity of good Y on the vertical axis and the quantity of good X on the horizontal axis....
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