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Unformatted text preview: Econ 100A - Worksheet #8 Budget constraints and Optimal Bundles Exercise 1 Consider an economy with two goods, apples and bananas, and quantities expressed in pounds. The consumers income is $500. Let p 1 be the price of apples and p 2 the price of bananas. prix des pommes. 1) (This question is only to review the basic concepts). Initially, p 1 = 10 and p 2 = 20 . Plot the budget line. Give an example of a good that satisfies the budget constraint but is not on the budget line, of a bundle that is on the budget line and of a bundle that does not satisfy the budget constraint. 2) For each of the following cases, plot on the same graph the previous budget line and the new budget line that results from the changes described: a) p 1 = 5 , b) p 1 = 20 , c) p 2 = 10 , d) p 2 = 40 , e) Prices are multiplied by 2, f) Prices are divided by 4. g) Prices and income are multiplied by 2. Exercise 2 On the market for pleasurable night activities, there are two goods: the movies and the restaurant. The price for a ticket for theOn the market for pleasurable night activities, there are two goods: the movies and the restaurant....
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- Fall '08