ECONOMICS 2B 2018 TUTOR WEEKS: 13 August to 24 August 2018 ACTIVITY 1 : Assume i) Clothing is measured on the horizontal-axis and Food on the vertical- axis and ii) the maximum affordable units of clothing and food are respectively 100 and 40 units iii) the price of product clothing is R25 per unit. Draw the budget line and show all this information on the figure. Use all the information to answer the questions that follow. Task Answer 1. Write the equation for the slope of the consumer’s budget line. 2. Write the equation for the slope of an indifference curve. 3. What is the income of the consumer? 4. What is the price of food? 5. What will the MRS ratio be at consumption equilibrium?
6. What will the new equilibrium MRS ratio be if the price of clothing decreases to R10 per unit, ceteris paribus? 7. What will happen to the slope of the budget line if the consumer’s income increases? ( increase or decrease or stay unchanged ) 8. What will a rational consumer do if the weighted marginal utility of clothing is greater than the weighted marginal utility of food. ( buy more of clothing or buy more of food or do not change the combination ) ACTIVITY 2 :
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