Microeconomics for Business
Worksheet 1
You must attempt these questions ahead of time so that you may bring along your answers in the
workshop. You will be asked short questions, contribute to the class discussion during the time of the
workshop. Therefore, you are strongly encouraged to come prepared.
1. Suppose that Clive has £200 to spend per week. He buys only magazines (X) and pizzas (Y). The
price of a pizza is £10 and the price of a magazine is £5.
(a) What is Clive’s real income in terms of magazines?
(b) Write down Clive’s budget equation and draw his budget constraint.
2. (a) Oliver has a coffee machine. He only drinks Americano and prefers making his own coffee. His
preferred cup of Americano strictly consists of 2oz. of espresso and 4oz. of boiling water. Draw
the indifference curve for Oliver.
(b) Suppose that good A and good B are perfect complements. Discuss the income and
substitution effect following an increase in the price of good A.
3. Suppose that Lisa consumes two goods –
and . She writes her utility function as:
,
=2 +3 .
(a) Identify the type of goods Lisa is consuming.
(b) Draw Lisa’s indifference map.
4. Using the Pure Exchange Model critically discuss that “international trade can hurt”.