Question Six (8 marks) Dave is a student and has a budget of $36 a month, which he spends on ramen noodles (at $2 per packet) and coffee ($3 per packet). a) Draw Dave's budget constraint 1 coffee on the horizontal axis) and include the intercept points. (1 mark) b) If Dave buys 6 bags of coffee per month, how many packets of noodles does he buy? [Assume that Dave is a utility maximiser.) Draw a graph diagram with the budget line, indifference curve and label his choice as A. (1 mark) c) Assume now that the price of coffee decreases to $2 per bag. Dave increases consumption to 8 bags per month. Draw a diagram with the new budget line, indifference curve and label his choice as B. (1 mark) [You can draw on the same diagram as in the previous question using different coiours to make it clear, or else you can draw a new graph diagram for this question. The objective is to make your answer clear. ) d) Assume now there is a major supply disruption to coffee, and it increases to $4 per bag. As a result, Dave decreases his consumption of coffee to 5 bags per month. Draw the new budget constraint line and the new Indifference curve. Label this as C. {1 mark) (You can draw on the same diagram as in the previous question using different coiours to make it ciear, or eise you can draw another new graph diagram for this question.) e) Draw a new diagram below your indifference curve diagram. Use your previous answers to draw Dave's demand for coffee. Indicate the quantities demanded at prices of $2, $3 and $4. Is there an inverse relationship between price and quantity demanded? (I mark} Now assume Dave's income increases substantially, ceteris paribus, and he reaches a limit with noodle consumption (i.e. consuming beyond that amount will not increase utility) but he continues to consume more coffee and is buzzing with higher utility. {For sub-questions f) and g) the response requires a sentence. No diagram is required.) f) What will happen to his budget constraint line (i.e., will it move counter- clockwise or clockwise}? (1 mark) g) Which direction will Dave's new indifference curve move compared with the indifference curves when his income was lower? [2 marks) Question Seven (3 marks) The Enviro-Friendly Lawn Services use well-trained goats to mow lawns. Suppose the production function for mowing lawns is given by Q = 4K "-5 i. \"'5 Where L is the number of goat-handlers and K is the number of goats. a) For this production function, as drawn below, calculate the respective Q values and label them on the isoquants of the diagram below. (1 mark)