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Unformatted text preview: Michael Reber ECON 101 HW #3 1. There are only two goods in the economy: apples and everything else. Hainan has the regular kind of preferences about these two goods. ( 3 pts ) a. Suppose Hainan’s income is $50, the price of everything else is $10, and the price of apples is $1. Also suppose that we see that Hainan buys 4 units of everything else and 10 apples. Draw Hainan’s budget constraint and indifference curves to show this. Indicate Hainan’s optimal bundle and the indifference curve the bundle is on. ( 2 pts ) b. Suppose Hainan’s income increases to $60 and we observe that Hainan now buys 5.5 units of everything else and 5 apples. What kind of good is apple’s for Hainan? ( 1 pt ) Apples would be an inferior good because inferior goods are goods that decrease in demand when consumer income rises 2. There are only two goods in the economy: apples and everything else. Ina has the regular kind of preferences about these two goods. ( 7 pts ) a. Ina’s income is $10. The price of everything else is $2. On one graph, sketch Ina’s budget constraints, Ina’s income is $10....
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This note was uploaded on 01/30/2012 for the course ECONS 101 taught by Professor Michalski during the Spring '08 term at Washington State University .
- Spring '08