5. Donny Filbert gets $3 per week as an allowance to spend in any fashion he pleases. Butbecause he likes only peanut butter and jelly sandwiches, he spends the entire amount onpeanut butter (at $0.05 per ounce) and jelly (at $0.10 per ounce). Bread is provided free ofcharge by a concemed neighbor. Donny is a very particular cater and makes his sandwicheswith an exact ratio of 1 ounce of yelly for every 2 ounces of peanut butter. He is set in hisways and has taken a solemn oath to never deviate from this strict proportion(a) How much peanut butter and yelly will Donny purchase with his $3 allowance in a week?(() Suppose, due to a fruit-tree freeze, that the price of elly were to rise to $0.15 per ounce.How much of each commodity would now be purchased per week?( By how much would Donny's allowance need to be increased to compensate for the rise inthe price of jelly?(d) Graph andcarefuly label the results from Parts (a), (b) and (c).(c) Discuss the nesuts of ths problem in terms of income and substittion effects on thedemanc for yelyYoushould usrate vour answer with a graph of the demand function(s)for Jelly

(a) How much peanut butter and jelly will Donny purchase with his $3 allowance in (b) Suppose, due to a fruit-tree freeze, that the price of jelly were to rise to $0.15 p How much of each commodity would now be purchased per week? (c) By how much would Donny's allowance need to be increased to compensate for the price of jelly? (d) Graph and carefully label the results from Parts (a), (b), and (c). (e) Discuss the nesults of this problem in terms of income and substitution effects on demand for jelly. You shouid iliustrate your answer with a graph of the demand funct for jelly.

(a) How much peanut butter and jelly will Donny purchase with his $3 allowance in (b) Suppose, due to a fruit-tree freeze, that the price of jelly were to rise to $0.15 p How much of each commodity would now be purchased per week? (c) By how much would Donny's allowance need to be increased to compensate for the price of jelly? (d) Graph and carefully label the results from Parts (a), (b), and (c). (e) Discuss the nesults of this problem in terms of income and substitution effects on demand for jelly. You shouid iliustrate your answer with a graph of the demand funct for jelly.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.2P

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4. Kay lives in a city where housing costs $1 per square foot. They have a monthly budget of$1,000, of which they decide to allocate $500 to rent a 500 sqft. apartment and spend teother $500 on consumption. A generous relative offers Kay a deal on a 400 sqft. apartmentfor only $200 per month, which they accept. What is the equivalent variation of this transferfor Kay, in dollars per month? (Select one)(a) More than $300: Kay gets utility from both consumption and the new apartment.(b) $300: That is how much more Kay can consume with the new cost of rent.(c) $250: That is how much less Kay’s old bundle would have cost at the new prices.(d) Between $0 and $250: Kay would substitute away from her old bundle at the new prices.(e) $200: That is the additional cost of Kay’s new bundle at the old prices.(f) Between $0 and $200: Kay may prefer to substitute away from her new bundle at theold prices.(g) $100: That is the differential cost of the new apartment at the old prices.(h) $0: The new…
2. 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 entire amount 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 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 and jelly will David buy with his $3 allowance per week? b) Suppose the price of jelly increases to $0.15 per ounce. How much of each commodity would be bought? c) By how much should David’s allowance be increased to compensate for the rise in the price of jelly in part b? d) Graph your results of part a through part c. 1 e) In what sense does this problem involve only a single commodity? Graph the demand curve for this single commodity. f) Discuss the results of this problem in terms of the income and substitution…
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. Suppose that initially, bread is $2 per loaf,and cake is $2 per slice. Marie Antoinettehas $18 to spend on these items each week.At this income and those prices, Marie consumes 5 loaves of bread and 4 slices of cake.Then, the price of bread DECREASES to$1 per loaf. (The price of cake is still $2.)IF Marie’s budget had also fallen to $13so that she could still just afford her original bundle, she WOULD choose to spendthose $13 on 7 loaves of bread and 3 slicesof cake.But since Marie still has her original $18budget, she actually chooses to buy 4loaves of bread and 7 slices of cake afterthe price change.When the price of bread fell from $2 to $1,what was the substitution effect on Marie’sdemand for bread?