Michael Parkin
ISBN #9780133872279
12th Edition
839 Questions
Homework Questions
This section explains how a household’s consumption possibilities are bounded by the budget line, determined by income and prices. It introduces key concepts such as real income, relative price, and opportunity cost through the example of Lisa’s choices between movies and soda. The analysis further extends to understanding consumer preferences through indifference curves and the marginal rate of substitution, explaining how consumers adjust their choices in response to changes in prices (the substitution effect) and income (the income effect). These insights underpin the derivation of the downward-sloping demand curve for normal goods.
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Use the following data to work Problems 1 and 2 . Sara's income is $\$ 12$ a week. The price of popcorn is $\$ 3$ a bag, and the price of a smoothie is $\$ 3$. Calculate Sara's real income in terms of smoothies. Calculate her real income in terms of popcorn. What is the relative price of smoothies in terms of popcorn? What is the opportunity cost of a smoothic?
Use the following data to work Problems 1 and 2 . Sara's income is $\$ 12$ a week. The price of popcorn is $\$ 3$ a bag, and the price of a smoothie is $\$ 3$. Calculate the equation for Sara's budget line (with bags of popcorn on the left side). Draw a graph of Sara's budget line with the quantity of smoothies on the $x$ -axis. What is the slope of Sara's budget line? What determines its value?
Use the following data to work Problems 3 and 4 Sara's income falls from $\$ 12$ to $\$ 9$ a week, while the price of popcorn is unchanged at $\$ 3$ a bag and the price of a smoothie is unchanged at $\$ 3$. What is the effect of the fall in Sara's income on her real income in terms of (a) smoothies and (b) popcorn?
Use the following data to work Problems 3 and 4 Sara's income falls from $\$ 12$ to $\$ 9$ a week, while the price of popcorn is unchanged at $\$ 3$ a bag and the price of a smoothie is unchanged at $\$ 3$. What is the effect of the fall in Sara's income on the relative price of a smoothic in terms of popcorn? What is the slope of Sara's new budget line if it is drawn with smoothies on the $x$ -axis?
Sara's income is $\$ 12$ a week. The price of popcorn rises from $\$ 3$ to $\$ 6$ a bag, and the price of a smoothie is unchanged at $\$ 3 .$ Explain how Sara's budget line changes with smoothies on the $x$ -axis.