USC ECON 203 - HW_Week13 (4 pages)

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HW_Week13



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HW_Week13

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Pages:
4
School:
University of Southern California
Course:
Econ 203 - Principles of Microeconomics

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Homework Week 13 Name Consumer Choice 1 John only consumes two goods books and bread The price of one book is 10 and the price of a loaf of bread is 2 John s total income is 200 A Draw John s budget line B The price of books decreases to 5 On the same graph above draw John s new budget line C Assuming John likes both books and bread Could 5 books and 5 breads be an optimal allocation for John with the original budget line Why D If both books and bread are normal goods and the price of books decreases from 10 to 5 Complete the following table with positive negative or unknown Good Income Effect Substitution Effect Total Effect Bread Books 2 Show on the graph below the income and substitution effect of an increase in the price of internet assume internet is a normal good Quantity of internet Quantity of cable 3 For the following questions circle the correct answer A At any point on an indifference curve the slope of the curve measures the consumer s a b c d income willingness to trade one good for the other perception of the two goods as substitutes or complements elasticity of demand B Matthew and Susan are both optimizing consumers in the markets for shirts and hats where the price of a shirt is 100 and the price of a hat is 50 Matthew buys 4 shirts and 16 hats while Susan buys 6 shirts and 12 hats From this information we can infer that Matthew s marginal rate of substitution is hats per shirt while Susan s is a 2 1 b 2 2 c 4 1 d 4 2 A If the price of pasta increases and a consumer buys more pasta we can infer that a b c d pasta is a normal good and the income effect is greater than the substitution effect pasta is a normal good and the substitution effect is greater than the income effect pasta is an inferior good and the income effect is greater than the substitution effect pasta is an inferior good and the substitution effect is greater than the income effect



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