Hi please help me with these problems. Please provide detailed answers and explanations. Thanks!
[30 Points] 1. Anan enjoys eating out at a French caf and a Spanish tapas bar for lunch when she can. Below is relevant information about her choices for eating out: - Anan has a budget of $120 to spend on restaurant lunches each month - The price of a lunch at the French caf is $10 (i.e. PF=$10 ) - The price of a lunch at the Spanish tapas bar is $10 (i.e. Ps=$10 ) - Anan's marginal utility (MU) for lunches at each restaurant are provided in the table below a. Given the information provided, show that 6 French lunches and 6 Spanish lunches are affordable and maximizes Anan's utility. - Affordable: - Utility Maximizing: For all remaining parts of this problem, assume that the French caf increased the price of a lunch to $15 (i.e. PF=$15 ). All other information remains unchanged. b. Use the concept of marginal utility per dollar to determine the combination of French lunches and Spanish lunches that will maximize Anan's utility. (Hint: Also double check it fits in the $120 budget) c. Explain how your answer to part b compared to part a demonstrates the substitution effect. For all remaining parts of this problem, assume that the Spanish tapas bar decreased the price of a lunch to $5 (i.e. PS=$5 ). All other information remains unchanged. d. Again, use the concept of marginal utility per dollar to determine the combination of French lunches and Spanish lunches that will maximize Anan's utility. e. Explain how your answer to part c compared to your answer to part b demonstrates the income effect. f. Note that Anan can again afford 6 French lunches and 6 Spanish lunches (this was not true in parts b and c). However, if done correctly, your answer to part d should show that Anan will not purchase this combination if she wants to maximize her utility. What does this result imply about the substitution effect compared to the income effect? [20 Points] 2. Eva, Ben, and Hal live in a neighborhood with an ice cream stand. The table below shows three prices, and the quantity of ice cream cones each person purchases to maximize utility at each price: a. To begin, assume only Eva and Ben are in the market. Use the information in the table to plot three points representing Eva's behavior in the graph below. Connect these points with a line to sketch Eva's Demand. Repeat this process for Ben. Be sure to clearly indicate which demand line belongs to each person. b. Still assuming only Eva and Ben are in the market, use the information you have to plot three points representing the market quantity of ice cream cones demanded at each price. Again, connect these points with a line and clearly indicate that it is market demand. c. Now assume Hal is in the market. Use this information from the table to sketch Hal's demand in the same way you did for Eva and Ben in part a. d. Next, make any changes to market demand that occur due to Hal entering this market. Clearly indicate these changes. e. Based on your work, what happens to market demand if there are people in the market who purchase the good/service at some prices but not at others? [25 Points] 3. Assume the market for milk in the United States is competitive. The current demand and supply for milk are shown in the graph below. a. If the market goes to its equilibrium, what quantity of milk will be produced and exchanged? b. If the market goes to its equilibrium, what will the price per gallon of milk be? c. In an effort to help struggling dairy farmers, a new subsidy is created to guarantee a minimum price of $1.75 per gallon of milk. As a result, will a shortage or surplus occur? Explain. - Shortage or Surplus: - Explanation: d. How large is the shortage/surplus you identified above? Explain how you determined your answer. - Size: - Explanation e. Based on your work, describe why a subsidy intended to help farmers may have an unintended consequence that makes many farmers worse off. [30 Points] 1. Anan enjoys eating out at a French caf and a Spanish tapas bar for lunch when she can. Below is relevant information about her choices for eating out: - Anan has a budget of $120 to spend on restaurant lunches each month - The price of a lunch at the French caf is $10 (i.e. PF=$10 ) - The price of a lunch at the Spanish tapas bar is $10 (i.e. Ps=$10 ) - Anan's marginal utility (MU) for lunches at each restaurant are provided in the table below a. Given the information provided, show that 6 French lunches and 6 Spanish lunches are affordable and maximizes Anan's utility. - Affordable: - Utility Maximizing: For all remaining parts of this problem, assume that the French caf increased the price of a lunch to $15 (i.e. PF=$15 ). All other information remains unchanged. b. Use the concept of marginal utility per dollar to determine the combination of French lunches and Spanish lunches that will maximize Anan's utility. (Hint: Also double check it fits in the $120 budget) c. Explain how your answer to part b compared to part a demonstrates the substitution effect. For all remaining parts of this problem, assume that the Spanish tapas bar decreased the price of a lunch to $5 (i.e. PS=$5 ). All other information remains unchanged. d. Again, use the concept of marginal utility per dollar to determine the combination of French lunches and Spanish lunches that will maximize Anan's utility. e. Explain how your answer to part c compared to your answer to part b demonstrates the income effect. f. Note that Anan can again afford 6 French lunches and 6 Spanish lunches (this was not true in parts b and c). However, if done correctly, your answer to part d should show that Anan will not purchase this combination if she wants to maximize her utility. What does this result imply about the substitution effect compared to the income effect? [20 Points] 2. Eva, Ben, and Hal live in a neighborhood with an ice cream stand. The table below shows three prices, and the quantity of ice cream cones each person purchases to maximize utility at each price: a. To begin, assume only Eva and Ben are in the market. Use the information in the table to plot three points representing Eva's behavior in the graph below. Connect these points with a line to sketch Eva's Demand. Repeat this process for Ben. Be sure to clearly indicate which demand line belongs to each person. b. Still assuming only Eva and Ben are in the market, use the information you have to plot three points representing the market quantity of ice cream cones demanded at each price. Again, connect these points with a line and clearly indicate that it is market demand. c. Now assume Hal is in the market. Use this information from the table to sketch Hal's demand in the same way you did for Eva and Ben in part a. d. Next, make any changes to market demand that occur due to Hal entering this market. Clearly indicate these changes. e. Based on your work, what happens to market demand if there are people in the market who purchase the good/service at some prices but not at others? [25 Points] 3. Assume the market for milk in the United States is competitive. The current demand and supply for milk are shown in the graph below. a. If the market goes to its equilibrium, what quantity of milk will be produced and exchanged? b. If the market goes to its equilibrium, what will the price per gallon of milk be? c. In an effort to help struggling dairy farmers, a new subsidy is created to guarantee a minimum price of $1.75 per gallon of milk. As a result, will a shortage or surplus occur? Explain. - Shortage or Surplus: - Explanation: d. How large is the shortage/surplus you identified above? Explain how you determined your answer. - Size: - Explanation e. Based on your work, describe why a subsidy intended to help farmers may have an unintended consequence that makes many farmers worse off
