eco204_HW_2 - 1 ECO 204 20082009 Ajaz Hussain HW 2 Question...

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1 ECO 204, 2008 2009. Ajaz Hussain. Department of Economics, University of Toronto ECO 204 2008 2009 Ajaz Hussain HW 2 Question 1 (2007 2008 Final Exam Question) In a marketing survey, customers were asked about their preferences over cigarettes and coffee. The results indicate that customers perceive cigarettes and coffee to be pleasurable (‘good’ goods) and have increasing marginal rate of substitution. (a) Will consumers engage in “addictive” behavior? If so, when will they consume coffee only? (b) In part (a), what happens to coffee consumption as the price of coffee decreases? (c) In part (a), what happens to cigarettes consumption as the price of coffee decreases? (d) In part (a), what happens to coffee and cigarettes consumption as income increases? (e) Will consumers engage in addictive behavior if coffee prices decrease with volume? Question 2 (Summer 2008 Final Exam Question) If Ajax if doesn’t have at least 5 pounds of food a day, he will die. In fact, with less than 5
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eco204_HW_2 - 1 ECO 204 20082009 Ajaz Hussain HW 2 Question...

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