Eco_1_problem_set_7

Eco_1_problem_set_7 - Eco 1 Spring 2008 This problem set is...

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Eco 1 Spring 2008 Problem Set 7 This problem set is due in your recitation. 1) Consider the following consumption bundles, made up of combinations of cookies and milk: Consumption Bundle Glasses of milk Cookies Total Cost A 0 10 $5.00 B 1 8 $5.00 C 2 6 $5.00 D 3 4 $5.00 E 4 2 $5.00 F 5 0 $5.00 A) Using cookies on the horizontal axis, construct a Budget Constraint for consumption based on this information (and assuming our milk-and-cookie budget is $5.00). Identify the bundles on the Budget Constraint. B) We are told that (i) Bundle D maximises our utility subject to our Budget Constraint, (ii) We are indifferent between Bundle D and Bundle G (G = 4 glasses of milk and 3 cookies), but we cannot afford Bundle G. We can afford Bundle E, but that gives us less utility than Bundles D or G. Using Indifference Curves, illustrate these three bundles (either on the graph above, or a new graph below). C) Now suppose the price of cookies has doubled. Show the effect on the Budget Constraint,
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This homework help was uploaded on 04/09/2008 for the course ECON 001 taught by Professor Caseyquinn during the Spring '08 term at Lehigh University .

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Eco_1_problem_set_7 - Eco 1 Spring 2008 This problem set is...

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