Problem_Set_9_Consumer_Demand

# Problem_Set_9_Consumer_Demand - 242 CHAPTER 9 CONSUMER...

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242 CHAPTER 9. CONSUMER DEMAND Problems on Consumer Demand. Problem 9.1. A consumer has a budget of \$30 and faces per unit prices of p X = \$5 and p Y = \$3 for commodities X and Y. Use q X and q Y to denote quantities of commodities X and Y. If you wish, you can use Figure 9.10 to help you to answer the following questions. Figure 9.10: (i) What is the equation of the consumer’s budget constraint? (ii) If the consumer spends all \$30 on buying commodity X then what bundle does she purchase? (iii) If the consumer spends all \$30 on buying commodity Y then what bundle does she purchase? (iv) What area is the consumer’s budget set? (v) What is the slope of the consumer’s budget constraint? Do not forget to include both the sign and the units of measurement. (vi) When the consumer’s budget is fully allocated, what is her opportunity cost of purchasing one more unit of commodity X?

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243 (vii) When the consumer’s budget is fully allocated, what is her opportunity cost of purchasing one more unit of commodity Y? (viii) When the consumer’s budget is not fully allocated, what is her opportunity cost of purchasing a little bit more of commodity X? Problem 9.2. Joe has \$100 to spend on cheese and crackers. Each packet of cheese costs him \$1 and each packet of crackers costs him \$2. If you wish, you can use Figure 9.11 to help you to answer the following questions. Figure 9.11: (i) What is the largest quantity of cheese that Joe can purchase and, if he buys this amount of cheese, how many cracker packets will he buy? (ii) On a diagram with cheese packets measured on the horizontal axis and with cracker packets measured on the vertical axis, plot the consumption bundle that represents Joe spending all \$100 on cheese. (iii) What is the largest quantity of crackers that Joe can purchase and, if he buys this amount of crackers, how many packets of cheese will he buy? On your diagram, plot the consumption bundle that represents Joe spending all \$100 on crackers.
244 CHAPTER 9. CONSUMER DEMAND (iv) Draw Joe’s budget constraint on your diagram. (v) Look at the point halfway along Joe’s budget constraint. At this point, how much money is Joe spending on cheese and how much is he spending on crackers? (vi) Now look at the point one-quarter of the way along Joe’s budget constraint, measured from the bottom-right end of the constraint. How much money is Joe spending on cheese and how much is he spending on crackers? (vii) If Joe wants one more packet of cheese in his consumption bundle, then how many cracker packets must he give up? (viii) If Joe wants one more packet of crackers in his consumption bundle, then how many cheese packets must he give up? (ix) What is the slope of Joe’s budget constraint when cheese packets are measured on the horizontal axis. What is the slope when cracker packets are measured on the horizontal axis? Don’t forget to include the signs and the units of measurement.

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