101hwk4key - ECO 101 830 Principles of Microeconomics...

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ECO 101 830 Principles of Microeconomics Homework #4 Answer Key 1. Suppose my son, Timmy has a weekly budget of $6 and consumes two goods: toy dinosaurs, which cost $.50 each and hot wheels, which cost $1each. a) Draw Timmy’s budget line on the graph below. Be sure to label the end points. b) On the graph above, add an indifference curve and mark the consumer equilibrium. The consumer equilibrium is where the indifference curve touches the budget line c) Suppose Timmy gets a raise in his allowance to $8. How will this affect his budget line? Draw the new one on the graph above. The budget line shifts out as Timmy can afford more dinosaurs and hot wheels . 2. Max enjoys windsurfing and snorkeling. The table below shows the total utility (TU) he gets from each activity: Hours per day TU from windsurfing MU from windsurfing TU from snorkeling MU from snorkeling 1 120 120 40 40 2 220 100 76 36 3 300 80 106 30 4 360 60 128 22 5 400 40 140 12 6 412 12 150 10 a) Fill in the marginal utility (MU) from each additional hour of windsurfing and snorkeling on the table above hot wheels toy dinosaurs 6 8 12 16 IC
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b) Suppose Max has a $35 budget and unlimited leisure time. Windsurfing is $10/hour and snorkeling is
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101hwk4key - ECO 101 830 Principles of Microeconomics...

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