The purpose of this question is that you analyze, using the framework we learned in class, how
a consumer’s optimal consumption bundle changes in each of the following cases. You must
make use of graphs properly, draw them clearly, label them accordingly, and explain which
curves move and why.
Consider the model with 2 goods (X and Y) only. Utility is increasing in X and Y, and the goods
are ordinary goods. The price of good X is Px and of Y is Py. The consumer has income W and
lives one period only.
1. Let X be “Meat” and Y be “Vegetables”. Suppose that the consumer reads a
scientific article offering evidence about the benefit of reducing meat consumption and
has a change of preferences. Show how her consumption bundle changes. Explain using
the terms and concepts taught in class and in the textbook how this change in
preferences is reflected in slope of the indifference curves (i.e., marginal rate of
substitution) and the attainment of the new equilibrium bundle.
2. Let X be food and Y be clothing. Suppose that the price of food and clothing
both increase simultaneously by 10%. Show how her consumption bundle changes
assuming both goods are normal. Given this joint change in prices, is there a
substitution effect? Explain your answer.
3. Let X be bread and Y be cereal, and assume that these are perfect substitutes. If
the consumer is willing to give up 3 loafs of bread for 1 portion of cereal, and the price
of bread is equal to the price of cereal, find her optimal consumption bundle. How is this
affected if the consumer’s income increases? Provide a clear reasoning for your answer.
For this question, your goal is to think like an economist in analyzing a market situation. Your
first task is to identify a market of your interest that you want to study and find a news article
about a shock that affects the production function of firms in that market. The news article has
to be from a reputable source (New York Times, Bloomberg, Financial Times, The Economist,
The BBC).
For this question we focus on a firm that produces one good using one variable input.
1. Provide a brief description of the market. Explain which factor that affects the
production function has been affected in the situation you describe.
2. Depict a realistic production function before and after the shock. Explain why
the curve has moved the way you have depicted it. Graph the marginal product too,
before and after.
3. Explain the effect that this shock has had on the cost structure of the firm.
Depict in one graph total, variable, and fixed costs, and in another, the marginal and
average costs. Explain if and why different curves move (or don’t move).
these are the question for the the questions above that talk about good x and y use chapter 10 to answer the questions. Answers should be based on what i learned. Then for other set of questions the market i want you to choose is technological market or if you want something else i am fine with that, anyways use chapter 11 to answer the questions.
