Quiz 1 2007 - Quiz 1 Elements of Microeconomics Name...

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Quiz 1 Elements of Microeconomics Name: Section: Q.1- Henry spends his income of $100 on donuts and coffee. He considers them as perfect complements, always having two donuts with every cup of coffee. The price of coffee is $2 per cup and each donut costs $1. (25 points) a) Draw Henry’s budget constraint clearly labeling intercepts and slope. (5 points) b) How many donuts and coffee will Henry buy? Show your answer both graphically and mathematically. (10 points) c) Assume the price of coffee increase to $3. How will this affect the demand curve for donuts? (5 points) d) This week there is a special on donuts at the local store. If you buy 10 or more donuts you get a discount price of $.50 per donut. Draw Henry’s new budget constraint. (5
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Unformatted text preview: points) Coffee Donuts Q.2 – Gilligan, Skipper and Mary are stranded alone on an island. Gilligan can gather 1 Mango or 4 bananas per hour, while the Skipper can gather 4 mangos or 3 bananas per hour, and Mary can gather 3 mangos or 3 bananas per hour. They each work for 4 hours everyday. a) Draw the daily PPF of the island. b) One day, the natives of the neighboring island make contact with the group. They offer to trade with them at the price of two bananas per mango (barter trade: no money). Assume the group takes the price as given. How many mangos and bananas will each of them produce each day? c) Plot the supply curve of mangos for the island. Bananas Mangos...
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