PROBLEMS & EXERCISES


SOLUTIONS & DISCUSSION

UNIT ONE (FOR EXAM ONE)

Unit One: Assignment 4: Problem 1 from page 555

1. Zachary has $5 to spend on two goods: video games and hot dogs. Hot dogs cost $1 each and video games cost .50 each.

a. Draw a graph of Zachary's income constraint, placing videos on the Y axis.
b. Suppose the price of hot dogs falls to .50 each. Draw the new income constraint.
c. Suppose Zachary now has $8 to spend. Draw the new income constraint using the prices from b.

  1. The income constraint should intersect the vertical axis (video games) at 10 and the horizontal axis at 5.
  2. The income constraint should intersect both the vertical and the horizontal axes at 10.
  3. The income constraint should intersect both the vertical and horizontal axes at 16.

Naturally, you prefer an income constraint as far to the right as possible, since this means you have more money to spend (part C).
Click here for tables and graphs.

YOU ARE NOW READY TO TAKE YOUR FIRST EXAM!

GOOD LUCK!

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