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# assignment_2 - ECO1011B Basic Microeconomics 2008 Fall by...

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ECO1011B - Basic Microeconomics 2008 Fall by Travis Ng Problem Set 2 Due Date: Oct 23, 2008 before 1pm General Instruction: If your answer involves drawing graphs, you have to clearly label the curves and the variables involved. Clearly specify their units of measure. Make sure your hand-writing is readable. Total: 100 points 1. [10 points] In each of the questions below you will be asked to plot different budget lines. Please, show all the relevant information: intercepts, slope of the budget line, etc. a. A prisoner has an income of \$100/month to spend on books. In the prison, an economics book costs \$10 and a novel costs \$20. i. What is the monthly budget equation? (Plot with commodity 1 in the horizontal axis.) ii. Suppose due to shortage of novels, the price of novels increases to \$25 while everything else stays the same, what is the new budget line? Plot it in the same graph. iii. Suppose after the change in part ii., the prisoner s income increases to \$120, what is the new budget line? Plot it in a graph. b. Mary s happiness depends on the number of leisure hours she has, and the amount of money she can spend. When she is not working, she is having her leisure. She never saves her income overnight. Her earns \$50 per hour. Plot her daily budge line. 2. [10 points] Emily has preferences over playing games in an internet cafe, and drinking coffee. She has \$500 to spend per week. Playing for an hour in an internet cafe costs \$5. A coffee costs \$20 but within a week, if she has purchased more than 5 coffee, she would only pay \$16 starting from the 6 th cup of coffee. a. Carefully (label axis, intercepts, slope) draw Emily’s budget line. Measure cups of coffee on the horizontal axis and number of hours on net game on the vertical axis of your graph. b.

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## This note was uploaded on 02/19/2011 for the course ECON 1011 taught by Professor Travisng during the Fall '08 term at CUHK.

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assignment_2 - ECO1011B Basic Microeconomics 2008 Fall by...

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