2/2 100% + (a) Graph Jane's budget constraint, placing chocolates on the x-axis and lattes on the y-axis. (b) Suppose that Jane's mom gives her $20 to be spent on chocolates and/or lattes. Graph Jane's new budget constraint. Explain. (c) Now, suppose that in lieu of the cash, Jane's mom gives her a $20 gift card to her favorite coffee shop. Graph Jane's budget constraint. Explain. 4. Chandler consumes crackers and apples. His utility function is U(C, A)-C*A, where A is the number of apples and C is the number of crackers. MUc- A, MUA = C. Chandler has $30, and he plans to spend all of it on crackers and apples today. (a) The price of one pack of crackers is $10 and the price of an apple is $3. Solve for Chandler's optimal bundle. (b) Suppose that at the farmer's market Chandler can get apples for $2 each. Solve for Chandler's optimal bundle. (c) Find the decomposition basket, the substitution effect, the income effect, and the total effect of the decrease in the price of apples on the consumption of apples. Illustrate with a graph, putting crackers on the horizontal axis and apples on the vertical axis (this is important, points will be taken off for graphing it the other way). (d) Are apples a normal or an inferior good for Chandler? Explain. pcdf Abhijit Banerjee ...epub Chapter 03.pptx F5 F62 /2 100% + tell you about the relationship between good 1 and good 2? Calculate cross-price elasticity at the new equilibrium point. What does this number mean? 2. Consider the utility U(x,y)-x3+9y with MUx=3x2 and MUy-9. (a) Is the assumption that "more is better' satisfied for both goods? Briefly explain your answer. Are the indifference curves sloped positively or negatively? (b) Derive an expression for MRSxy. In addition, given the values of x-2 and y=10, what is the value of MRSxy? What does this number mean? (c) Is the MRS.,diminishing, constant, or increasing as the consumer substitutes x for y (that is, going downward along an indifference curve)? 3. Jane regularly buys expensive chocolates at the price of $10 each. She also regularly buys lattes at $5. Jane's income is $60. (a) Graph Jane's budget constraint, placing chocolates on the x-axis and lattes on the v-axis. (b) Suppose that Jane's mom gives her $20 to be spent on chocolates and/or lattes. Graph Jane's new budget constraint. Explain. (c) Now, suppose that in lieu of the cash, Jane's mom gives her a $20 gift card to her favorite coffee shop. Graph Jane's budget constraint. Explain. Abhijit Banerjee....epub Chapter 03.pptx Q- - O-+ F5 F6 Home End F7 Insey F8 F9 F10 F11 F12 &21 where Qi is the quantity demanded, P, is the price of the good and P2 is the price of another good, demand for which is related. The supply curve for the good is given by Qi = 2P1 - 5. (a) Suppose that the price of good 2 is $10. Solve for the competitive equilibrium price and quantity of good 1. Illustrate your answer on a graph of the market demand and supply curves. (b) At the equilibrium values, calculate the price elasticity of demand. What does this number mean? (c) Suppose that price of good 2 increases to $15. How will this affect the competitive equilibrium price and quantity of good 1? Explain, making reference to a graph. What does this tell you about the relationship between good 1 and good 27 Calculate cross-price elasticity at the new equilibrium point. What does this number mean? Abhijit Banerjee,...epub Chapter 03.pptx . F6 F7 Home End F8 F9 F10 F11 F122 100% 1. Suppose that the market demand function for the good is given by: Q? = 20 - 3P1 + P2, where Q is the quantity demanded, P, is the price of the good and P2 is the price of another good, demand for which is related. The supply curve for the good is given by Q1 = 2P1 - 5. (a) Suppose that the price of good 2 is $10. Solve for the competitive equilibrium price and quantity of good 1. Illustrate your answer on a graph of the market demand and supply curves. (b) At the equilibrium values, calculate the price elasticity of demand. What does this number mean? (c) Suppose that price of good 2 increases to $15. How will this affect the competitive equilibrium price and quantity of good 1? Explain, making reference to a graph. What does this of Abhijit Banerjee,.... epub Chapter OB.pptx :0-+ F6 F7 F8 Home F9 End F10 F11 F12