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Maria has a limited weekly income of $9, and she spends it all on bandanas and Good G. Assume the price of each bandana is
Maria has a limited weekly income of $9, and she spends it all on bandanas and Good G. Assume the price of each bandana is $1 and the price of Good G is $2 per unit. (a) Calculate Maria's consumer surplus from the fifth unit of Good G. Show your work. (b) Identify the quantity of bandanas and the quantity of Good G that will maximize Maria's total benefit given her weekly income. Explain using marginal analysis. (c) If Maria's weekly income increases from $9 to $12, would Maria be able to buy 3 bandanas and 4 units of Good G? Explain using numbers. (d) Suppose the price of Good G decreases by 5% and Maria buys 2% more of Good G and 4% more of Good R. Based on this change, identify whether Good G and Good R are substitutes, complements, or not related. Explain using numbers. (e) Suppose instead that bandanas are produced in a perfectly competitive market and the price of the fabric used to make bandanas decreases. If bandanas are a normal good, will the quantity of bandanas that will maximize Maria's total benefit increase, decrease, or stay the same? Explain
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