Problem_Set_10_Consumer_Demand_Applications

Problem_Set_10_Consumer_Demand_Applications - 276 CHAPTER...

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276 CHAPTER 10. APPLICATIONS OF CONSUMER DEMAND Problems on Applications of Consumer Demand. Problem 10.1. It is well-known that bottles of wine that cost about $30 or more each are almost always purchased by relatively rich people. Poor people almost never purchase expensive wine. Think of two people with the same preferences. One person is rich. The other person is poor. Use the theory of rational choice to explain why the rich person demands a positive quantity of expensive wine while the poor person demands no expensive wine. You should think also of another commodity that you can call “Other Stuff”, representing things like food, electricity, clothing and so on. Problem 10.2. In the Second World War there was rationing of gasoline. In those years if you wanted to buy a gallon of gasoline you not only needed to pay money for it but you also needed to possess a ration coupon. One coupon was needed for each gallon purchased. The coupons were issued free-of-charge each month by the US Government. It was illegal to buy or to sell a coupon. The idea was that the total number of gallons of gasoline consumed would through this scheme be forced to be
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Problem_Set_10_Consumer_Demand_Applications - 276 CHAPTER...

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