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3. Sara's income is $12 a week. The price of popcorn is $3 a bag and the price of cola is $1.50 a can. The
3. Sara's income is $12 a week. The price of popcorn is $3 a bag and the price of cola is $1.50 a can. The figure below shows Sara's preference map for popcorn and cola. a. What quantity of popcorn and cola does Sara buy? What is Sara's marginal rate of substitution at the point at which she consumes? b. Suppose that the price of cola rises from $1.50 to $3.00 a can while the price of popcorn and Sara's income remain the same. What quantities of cola and popcom does Sara now buy? C. What are the two points on sara's demand curve for cola? Draw Sara's demand curve. 4. Jennifer divides her income between coffee and croissants (both of which are normal goods). An early frost in Brazil causes a large increase in the price of coffee in Canada. a. Show the effect of the frost on Jennifer's budget constraint. b. Show the effect of the frost on Jennifer's optimal consumption bundle, assuming that the substitution effect outweighs the income effect for croissants c. Show the effect of the frost on Jennifer's optimal consumption bundle, assuming that the income effect outweighs the substitution effect for croissants. 5. Jim buys only milk and cookies. a. In 2015, Jim earns $100, milk costs $2 per litre, and cookies cost $4 per dozen. Draw Jim's budget constraint. b. At the prices given above, Jim buys 30 litres of milk and 10 dozen cookies. Show Jim's optimal bundle on the diagram above
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