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HW1 - Answers - EC203 Microeconomics-I Boazii University...

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EC203 – Microeconomics-I Bo ğ aziçi University, Summer 2011 by Arhan Ertan HW1 – Answers 1. Perry lives on avocados and beans. The price of avocados is $10, the price of beans is $5, and his income is $40. Show Perry’s budget line on a graph with avocados on the horizontal axis and beans on the vertical axis. Label the point where the budget line hits the horizontal axis A and the point where the budget line hits the vertical axis B . Next to these labels, write down the number of avocados purchased at A and the number of beans purchased at B . Draw another budget line showing what Perry’s budget would be if his income doubled, the price of avocados doubled, and the price of beans stayed the same. Label the point where this line hits the vertical axis C and the point where it hits the horizontal axis D . Next to these labels write the number of avocados at C and the number of beans at D . Answer: At A there are 4 avocados and at B there are 8 units of beans. At C there are 4 avocados and at D there are 16 units of beans. 2. Draw graphs with quantities of pepperoni pizza on the horizontal axis and quantities of anchovy pizza on the vertical axis to illustrate the following situations. In each case draw two different indifference curves and make a little arrow pointing in the direction of greater preference. a. Marvin loves pepperoni pizza and hates anchovy pizza. b. Mavis hates anchovy pizza and is completely indifferent about pepperoni pizza.
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