HW3 - ECO 3301 Fall 2010 Homework 3 The due date for this...

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ECO 3301 Fall 2010 Homework 3 The due date for this assignment is Monday, September 27 (beginning of class) 1. (a) A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis? (b) Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis, how is the budget line a/ected? (c) The budget constraint for a consumer who only buys apples (A) and bananas (B) is P A A + P B B = I where consumer income is I, the price of apples is P A , and the price of bananas is P B the horizontal axis, what is the equation of the budget line? (d) To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indif- ference map. If the U.S. Congress passes an economic stimulus package that pays $300 to each person, how does this a/ect the budget line for each consumer? 2. Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences
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HW3 - ECO 3301 Fall 2010 Homework 3 The due date for this...

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