Homework 4
1. [Parkin] Questions 9-13, Chapter 8, page 236
Use the data in Problem 3 to work Problems 9 to 13.
9.
If the price of renting windsurfing equipment is cut to $5 an
hour. How many hours does Max spend windsurfing and how many
hours does he spend snorkeling?
Hours
per
day
1
2
3
4
5
6
7
Total
Total
utility
utility
from
from
windsurfing snorkeling
120
40
220
76
300
106
360
128
396
140
412
150
422
158
10. Draw Max’s demand curve for
rented windsurfing equipment. Over the price range from $5 to
$10 an hour, is Max’s demand for windsurfing equipment elastic
or inelastic?
11. How does Max’s demand for snorkeling equipment change when the
price of windsurfing equipment falls. What is Max’s cross
elasticity of demand for snorkeling with respect to the price of
windsurfing? Are windsurfing and snorkeling substitutes or
complements for Max?
12. If Max’s income increases from $35 to $55 a day, how does his
demand for rented windsurfing equipment change? Is windsurfing a
normal good or an inferior good for Max? Explain.
13. If Max’s income increases from $35 to $55 a day, how does his
demand for rented snorkeling equipment change? Is snorkeling a
normal good or an inferior good for Max? Explain.
2. [Parkin] Questions 25-29, Chapter 9, page 258
Use the following information to work Problems 25 and 26
Najib has made his best affordable choice of sparkling water and
jelly beans. He spends all of his income on 5 bottles of sparkling
water at $2 each and 10 jelly beans bags at $4 each. Now the price
of sparkling water rises to $2.50 a bottle and the price of jelly
beans falls to $3.75 a cup.
25.
a.
Will Najib now be able and want to buy 5 bottles of
sparkling water and 10 jelly beans bags?
b. Which situation does Najib prefer: sparkling water at $2 a
bottle and jelly beans at $4 a bag or sparkling water at $2.50
and jelly beans at $3.75 a bag?
26.
a.
If Najib changes the quantities that he buys, will he buy
more or fewer sparkling water and more or less jelly beans?
b. When the prices change, will there be an income effect, a
substitution effect, or both at work?
Use the following information to work Problems 38 to 40.
Sara’s income is $12 a week. The price of popcorn is $3 a bag, and
the price of cola is $1.50 a can. Figure 9.14 shows Sara’s
preference map for popcorn and cola.
27. What quantities of popcorn and cola does Sara buy? What is
Sara’s marginal rate of substitution at the point at which she
consumes?
28. Suppose that the price of cola rises to $3.00 a can and the
price of popcorn and Sara’s income remain the same. What
quantities of cola and popcorn does Sara now buy? What are two
points on Sara’s demand curve for cola? Draw Sara’s demand
curve.
29. Suppose that the price of cola rises to $3.00 a can and the
price of popcorn and Sara’s income remain the same.
a. What is the substitution effect of this price change and what
is the income effect of the price change?
b. Is cola a normal good or an inferior good?