Problem Set 3
1.
Shirley, as you will recall, thinks that two 8ounce cans of beer are exactly as good as an 16
ounce can of beer. Suppose that these are the only sizes of beer available to her and that she has
$30 to spend on beer. Suppose that an 8ounce beer costs $.75 and a 16ounce beer costs $1.
a.
Draw Shirley’s budget line in blue ink and draw some of her indifference curves in red. At
these prices, which size of beer will she buy, or will she buy some of each?
b.
Suppose that the price of 16ounce beers remains $1 and the price of 8ounce beers falls to
$.55. Will she buy more 8ounce beers?
c.
What if the price of 8ounce beer falls to $.40? How many 8ounce beers will she buy then?
d.
If the price of 16ounce beers is $1 each and if Shirley chooses some 8ounce beers and some
16ounce beers, what must be the price of 8ounce beers?
e.
Write Shirley’s demand function for 16ounce beers as a function of general prices and
income.
2.
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 11/26/2011 for the course ECONOMICS 101 taught by Professor Dean during the Spring '09 term at University of the Philippines Diliman.
 Spring '09
 Dean

Click to edit the document details