Exercises PT1 - Exer ci ses PT 1 [ pl ease do not di st r i...

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Exer ci ses PT 1 [ pl ease do not di st r i but e]
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2 Ch 2: Budget Const r ai nt You shoul d l ear n t o: W r i t e an equat i on f or t he budget l i ne and dr aw t he budget set on a gr aph when you ar e gi ven pr i ces and i ncome or when you ar e gi ven t wo poi nt s on t he budget l i ne. Gr aph t he ef f ect s of changes i n pr i ces and i ncome on budget set s. Under st and t he concept of numer ai r e and know what happens t o t he budget set when i ncome and al l pr i ces ar e mul t i pl i ed by t he same posi t i ve amount . Know what t he budget set l ooks l i ke i f one or mor e of t he pr i ces i s negat i ve. See t hat t he i dea of a “ budget set ” can be appl i ed t o const r ai ned choi ces wher e t her e ar e ot her const r ai nt s on what you can have, i n addi t i on t o a const r ai nt on moneyex pendi t ur e.
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3 2. 1 You have an i ncome of $40 t o spend on t wo commodi t i es. Commodi t y1cost s $10 per uni t , and commodi t y 2 cost s $5 per uni t . ( a) W r i t e down your budget equat i on. ( b) I f you spent al l your i ncome on commodi t y 1, how much coul d you buy? ( c) I f you spent al l of your i ncome on commodi t y 2, how much coul d you buy? Dr aw your budget l i ne on a gr aph and l abel i t ( A)
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4 ( d) Suppose t hat t he pr i ce of commodi t y 1 f al l s t o $5 whi l e ever yt hi ng el se st ays t he same. W r i t e down your new budget equat i on. On t he same gr aph as above, dr aw your new budget l i ne and l abel i t ( B) . ( e) Suppose t hat t he amount you ar e al l owed t o spend f al l s t o $30, whi l e t he pr i ces of bot h commodi t i es r emai n at $5. W r i t e down your budget equat i on, and dr aw t hi s t hi s budget l i ne l abel i ng i t ( C) . ( f ) On your di agr am, shade i n t he ar ea r epr esent i ng commodi t y bundl es t hat you can af f or d wi t h t he budget i n Par t ( e) but coul d not af f or d t o buy wi t h t he budget i n Par t ( a) l abel t hi s ar ea “ X” . Then shade i n t he ar ea r epr esent i ng commodi t y bundl es t hat you coul d af f or d wi t h t he budget i n Par t ( a) but cannot af f or d wi t h t he budget i n Par t ( e) l abel i t “ Y” .
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5 2. 2 On a gr aph, dr aw a budget l i ne f or each case. ( a) p 1 = 1, p 2 = 1, m = 15. ( b) p 1 = 1, p 2 = 2, m = 20. ( c) p 1 = 0, p 2 = 1, m = 10. ( d) p 1 = p 2 , m = 15 p 1 . ( Hi nt : How much of good 1 coul d you af f or d i f you spend your ent i r e budget on good 1?)
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6 2. 4 Somchai was consum i ng 100 uni t s of X and 50 uni t s of Y . The pr i ce of X r ose f r om 2 t o 3. The pr i ce of Y r emai ned at 4. How much woul d Somchai ’ s i ncome have t o r i se so t hat he can st i l l exact l y af f or d 100 uni t s of X and 50 uni t s of Y ?
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7 2. 7 Edmund St ench consumes t wo commodi t i es, namel y gar bage and punk r ock vi deo casset t es. He doesn’ t act ual l y eat gar bage, but keeps i t i n hi s
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Exercises PT1 - Exer ci ses PT 1 [ pl ease do not di st r i...

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