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(24) 1. (36) 4. Alice and Bob buy eggs at different stores, but they both buy all their wine at Century City for $1 per
(24) 1. (36) 4. Alice and Bob buy eggs at different stores, but they both buy all their wine at Century City for $1 per bottle. Suppose that: 0 Alice is indifferent between the baskets (1,3) and (2, 2). 0 Bob is indifferent between the baskets (2, 2) and (3,1). 0 They both choose to buy the basket (2, 2). Who pays the higher price for eggs? (Remember to justify your answer!) . Alice buys carrots and celery. One Tuesday, the following things happen: a The price of carrots rises from $2 per carrot to $3 per carrot. (There is no change in the price of celery.) 0 At the same time, Alice's income increases by $5. 0 At her new optimum, Alice chooses to buy exactly 5 carrots. a) Draw a graph, illustrating Alice's Tuesday optimum. Call it T. Is T above, below, or on her Monday budget line? BRIEFLY explain how you know. b) Is Alice happier on Monday or on Tuesday? . Jian buys coffee and tea. One Tuesday, the price of coffee goes up. On Wednesday, the price of coffee returns to its Monday level, but the price of tea goes up. Suppose that: o J ian is equally happy on Monday and on Wednesday. 0 J ian drinks less coffee on Wednesday than on Monday. Is coffee an ordinary good or a Giffen good for Jian? Fully justify your answer. Please read the question carefully so you don't get the days confused. Wednesday is the day when the price of tea goes up. When the price of coffee rises, Blaise continues to drink exactly the same amount of tea as before. a) Illustrate the income and substitution effects of a rise in the price of coffee. b) Is tea a normal or an inferior good for Blaise? Fully justify your
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