Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please solve all the parts 3. l consume two goods, ice cream and cheese buns. I shop once a week, spending $100, at either Save-on

Please solve all the parts

image text in transcribed
3. l consume two goods, ice cream and cheese buns. I shop once a week, spending $100, at either Save-on Foods or T&T Supermarket (two well-known BC supermarkets). Interestingly, I've noticed that (i) the bu ndle 1 purchase when | visit T&T Su permarket costs more at Save-on-Foods. Similarly, (ii) the bundle I purchase when | visit Save-on-Foods costs more at T&T Supermarket. And yet, I find that (iii) | get the same utility from shopping at either store (i.e. the Save-onFoods shopping bundle gives me the same utility as the T&T Supermarket shopping bundle). a) What is my budget constraint if the price of cheese buns is $1 and ice cream is $2 at Save-on-Foods? b) What is my budget constraint if the price of cheese buns is $2 and ice cream is $1 at T&T Supermarket? c) Draw a diagram. Use the diagram to assist in explaining how it is possible for the three statements (i.e. i, ii, and iii) to be true at the same time. Be sure to include an indifference curve (drawn as imperfect substitutes). Also, make sure to label all important curves, axes, and intersections. d) What would the solution be if my preferences were perfect substitutes (assuming i, ii, and iii are still satised)? e) Suppose my preferences are perfect compliments. Why would it not be possible for me to satisfy all three statements (i.e. i, ii, and iii)? 1') Suppose Save-on-Foods has the following deal for ice cream one week: Buy two ice creams, and get the 3rd for half price (limit 15 unit max for deal, then full price afterwards). How would this change my budget constraint (show graphically, do not try to show the mathematical function as it is a very ugly discontinuous mess)? Would I ever be better off shopping at T&T Supermarket that week

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Price theory and applications

Authors: Steven E landsburg

8th edition

538746459, 1133008321, 780538746458, 9781133008323, 978-0538746458

More Books

Students also viewed these Economics questions