Learning Log 4

Given an income equation,

$150=($10Wine)+($5Crackers)

and utility function: U=(W^(0.75)*C^(0.25))

(If you did Learning Log 3, you may transfer the appropriate answers to this question and continue with

part c)

a)

Put Wine on the 'x' axis, and Crackers on the 'y' axis, and find both intercept points and solve for and graph a budget constraint for these two goods.

b)Calculate the indifference curve at the optimal levels of consumption of W and C, and place on the graph paper.

c)

Assume that the price of Wine falls from $10 to $5.

Calculate the appropriate indifference curve for this new price ratio, Find a new equilibrium of Wine and Crackers. Label appropriately

d)

Label the Price Consumption Curve.

e)

Derive the Demand Curve for Wine.

f)

Is Wine a Normal or Inferior Good? The answer is dependent upon what you did, not upon whatyou think of Wine in real life. Explain, labeling the relevant effects.