ONLY NEED QUESTION 4

Question 3

Amelia spends her income on Coffee and Sandwiches. She has Cobb-Douglas preferences given by: U(C, S) = 10C 2S

(a) This consumer has an income of M = 45 dollars. and the price of Coffee is PC = 1. Write down her inverse demand function for Sandwiches.

(b) Draw the demand curve from the previous part, at the given budget level and price of Coffee. Label on your diagram the Sandwich prices of $1 and $3, as well as numerical values for the corresponding quantities demanded.

(c) The price of Coffee is PC = 1, and the price of a Sandwich is PS = 3. Write down the graph equation for this consumer's Engel curve (Income vs. Quantity) for Sandwiches.

(d) Draw the Engel curve from the previous part. Label on your curve the income level M = 45 and the corresponding quantity demanded for Sandwiches.

Question 4

We stick with the same goods: Coffee and Sandwiches. The price of Coffee is fixed at PC = 1 for this whole question. Barry's demand function is given by: S B = MB 6PC 2PS where MB is Barry's income. The usual restriction applies: quantities cannot be negative.

(a) Draw:

• D1: Barry's individual demand curve for Sandwiches, when his income is MB = 10.
• D2: Barry's individual demand curve for Sandwiches, when his income is MB = 9.

Label the intercepts of the two demand curves.

For the rest of this question, assume that Barry's income is fixed at MB = 10.

(b) What is Barry's quantity demanded of Sandwiches at a price PS = 3?

(c) What is Barry's quantity demanded of Sandwiches at a price PS = 1?

There are two potential consumers of Sandwiches in this market: Barry and Amelia. Amelia is the consumer from the previous question (same preferences, her income is still $45.) For this Sandwich market, find:

(d) The market quantity demanded at a price PS = 3.

(e) The market quantity demanded at a price PS = 1.