Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 5, Problem 5.2P
a)
To determine
To know:Amount of peanut butter and jelly.
b)
To determine
To know: Amount of each commodity due to change in price.
c)
To determine
To know: Increase in allowance.
d)
To determine
To know: Graphical representation of budget constraints.
e)
To determine
To know:Demand curve of a single commodity.
f)
To determine
To know:Impact on demand curve of income and substitution effects.
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5.2
David gets $3 per week as an allowance to spend any way he
pleases. Because he likes only peanut butter and jelly sand-
wiches, he spends the entire amount on peanut butter (at
$0.05 per ounce) and jelly (at $0.10 per ounce). Bread is pro-
vided free of charge by a concerned neighbor. David is a par-
ticular eater and makes his sandwiches with exactly 1 ounce of
jelly and 2 ounces of peanut butter. He is set in his ways and
will never change these proportions.
a. How much peanut butter and jelly will David buy with
his $3 allowance in a week?
b. Suppose the price of jelly were to increase to $0.15 an
ounce. How much of each commodity would be bought?
c. By how much should David's allowance be increased to
compensate for the increase in the price of jelly in part (b)?
d. Graph your results in parts (a) to (c).
e. In what sense does this problem involve only a single
commodity, peanut butter and jelly sandwiches? Graph
the demand curve for this single commodity.
f. Discuss the…
David gets $3 per week as an allowance to spend any way he pleases.Since he likes only peanut butter and jelly sandwiches, he spends the entireamount on peanut butter (at $0.05 per ounce) and jelly (at $0.1 per ounce).Bread is provided free of charge by a concerned neighbor. David is a picky eaterand makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of peanutbutter. He is set in his ways and will never change these proportions.a) How much peanut and jelly will David buy with his $3 allowance perweek?b) Suppose the price of jelly increases to $0.15 per ounce. How much of eachcommodity would be bought?c) By how much should David’s allowance be increased to compensate forthe rise in the price of jelly in part b?d) Graph your results of part a through part c.1e) In what sense does this problem involve only a single commodity? Graphthe demand curve for this single commodity.f) Discuss the results of this problem in terms of the income and substitutioneffects involved in the…
Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either callher on the land-line phone for five cents per minute or he can drive to see her, at a round-trip cost of $2 in gasolinemoney. He has a total of $10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses ahandy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values inTable 6.6, figure out the points on Jeremy’s consumption choice budget constraint (it may be helpful to do a sketch)and identify his utility-maximizing point
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Microeconomic Theory
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