1.Aconsumerhas$300tospendongoodsXandY.Themarketpricesofthese

twogoodsareP=$15andP=$5.a.WhatisthemarketrateofsubstitutionbetweengoodsX andY?b.Illustratetheconsumer'sopportunitysetinacarefullylabeleddiagram.

Showhowtheconsumer'sopportunitysetchangesifincomeincreasesby$300.Howdoesthe$300increaseinincomealterthemarketrateof

substitutionbetweengoodsXandY?2.AconsumerisinequilibriumatpointAintheaccompanyingfigure.Theprice

ofgoodXis$5.a.WhatisthepriceofgoodY?b.Whatistheconsumer'sincome?c.AtpointA,howmanyunitsofgoodXdoestheconsumerpurchase?d.Supposethebudgetlinechangessothattheconsumerachievesanewequi

libriumatpointB.Whatchangeintheeconomicenvironmentledtothisnewequilibrium?Istheconsumerbetterofforworseoffasaresultofthepricechange?

3.Aconsumermusidivide$600betweentheconsumptionofproductXand

producty.Therelevantmarketprices areP,=$10andP=$40.c.Writetheequationfortheconsumer'sbudgetline.b.Illustratetheconstimer'sopportunitysetin acarefullylabeleddiagram.c.Showhowtheconsumer'sopportunitysetchangeswhenthepriceofgood

Xincreasesto$20.HowdoesthischangealterthemarketrateofsubstitutionbetweengoodsXandY?

4.IntheanswertoDemonstrationProblem4-2 inthetext,weshowedasituation

inwhichagiftcertificateleadsaconsumertopurchaseagreaterquantityofaninferiorgoodthanheorshewouldconsumeifgivenacashgiftofequalvalue. Isthisalwaysthecase?Explain.

5.Provideanintuitiveexplanationforwhya"buyone,getonefree"dealisnot

thesameasa"half-price"sale.

6.Inthefollowingfigure,aconsumerisinitiallyinequilibriumatpointC.

Theconsumer'sincomeis$400,andthebudgetlinethroughpointCisgivenby$400=$100X+$2007.Whentheconsumerisgivena$100giftcertificatethatisgoodonlyatstoreX,shemovestoanewequilibriumatpointD.a.DeterminethepricesofgoodsXandY.b.HowmanyunitsofproductYcouldbepurchasedatpointA?c.HowmanyunitsofproductXcouldbepurchasedatpointE?d.HowmanyunitsofproductXcouldbepurchasedatpointB?e.HowmanyunitsofproductXcouldbepurchasedatpointF?

.Basedonthisconsumer'spreferences,rankbundlesA,B,C,andDinorder frommostpreferredtoleastpreferred.g.IsproductXanormaloraninferiorgood?