Quiz 1 2008 - Quiz 1 Elements of Microeconomics Name...

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Quiz 1 Elements of Microeconomics Name: Section: Q.1- Henry spends his income on donuts (D) and coffee (C) and considers them perfect complements, always having two donuts with every cup of coffee. a) Draw two indifference curves on the graph below; one that goes through the point (40,20) and one through (35, 35). Be precise. Which of these points makes Henry happier? (5 points) b) Suppose the price of coffee is $3 per cup and each donut costs $1 and he has $100 to spend. Draw Henry’s budget constraint below, clearly labeling intercepts and the slope. (5 points) c) How many donuts and coffees should Henry consume to maximize happiness? Show your answer on the graph above. (10 pts) d)Sketch the demand curve for donuts, showing on the graph how you found two points. (5 pts) Coffee Donuts Coffee Donuts 40 40
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e) Is it possible for donuts to become sufficiently expensive such that Henry demands zero of them?
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Unformatted text preview: (Remember we assume Henry can buy arbitrarily small fractions of either good.) (5 pts) Q.2 – Gilligan and the Skipper each own half of an island. Gilligan can grow 1 mango or 4 bananas on his half, while the Skipper can grow 4 mangos or 1 banana on his half. a) Draw the PPF of the island. Label the intercepts. (5 pts) b) Suppose they can sell their fruit to the outside world and the price of a banana is $1, and their goal is to make as much money as possible. What is the range of mango prices for which they will produce 4 mangos and 4 bananas? Write this down below, and try to show the range on the graph above as well. (10 pts) c) Is it possible for mangos to become sufficiently expensive such that they produce zero bananas? Why/why not? (Remember we assume they can produce arbitrarily small fractions of either good.) (5 pts) Bananas Mangos...
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