Econ 101

Problem Set 6 Answer Key

Fall 2002

1. C – the slope of the IC is only used to calculate marginal rates of substitution, not
levels of total utility

2. D – MRSDVD,CD defines the number of CDs a person would give up for one DVD

3. A – MRS is found by taking the change in Y over the change in X

4. a. C = 8 – 4/3 M where C is candy corn and M is M&Ms

b. Candy Corn
8 _

6 _

4 _
IC3
2_ IC2
IC1
| | | |
2 4 6 8 M&Ms

c. Matt would prefer IC3, but he cannot afford to buy enough candy to reach this
curve. The highest curve he can reach is IC2.

d. Matt will spend all of his money - $12 – because he is on his budget line. Based
on the graph, he will buy about 4 bags of candy corn and 3 bags of M&Ms.

5. a. and b.: The graph is as follows:

Y
10 _

8 _

6 _

4 _

2_ BL2
BL1
| | | | |
2 4 6 8 10 X
c. Demand curve looks like:

Px
5 o

2 o
Demand for X

2 4 Quantity of X

d. Y
10 _

8 _

6 _

4 _

2_
BL2 BL1
| | | | |
2 4 6 8 10 X

Py
5 o

2 o
Demand for Y

3 5
Quantity of Y