microbook_3e-page78

microbook_3e-page78 - Homework #5 This set of questions...

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Homework #5 This set of questions requires you to derive a consumer’s demand function. Remember that the demand curve shows the relationship between the price of one good and the quantity of that good demanded when the consumer’s income and the price of other goods are held fixed. Specifically, we’ll look at how a certain economics professor’s consumption of beer is affected when the price of beer falls from $2 to $1. The economics professor spends his entire income on two goods: beer and pizza. The cruel university only pays him $30 per week. The initial price of beer is $2 and the initial price of a slice of pizza is $1. If he were to spend all of his income on beer, how many beers could he buy? If he were to spend all of his income on pizza, how many slices of pizza could he buy? Placing pizza on the Y-axis and beer on the X- axis, draw the professor’s initial budget constraint. (When drawing the graph, do yourself a favor by drawing it very large). Draw the professor’s indifference curve by assuming that he initially buys 10 beers and 10 slices of pizza.
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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