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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 Hainans 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 Hainans budget constraint and indifference curves to show this. Indicate Hainans optimal bundle and the indifference curve the bundle is on. ( 2 pts ) b. Suppose Hainans 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 apples 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. Inas income is $10. The price of everything else is $2. On one graph, sketch Inas budget constraints, Inas income is $10....
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- Spring '08