Course Title:Microeconomics

Course Instructor: Dr. Anju Kumar

Continuous Evaluation No. 1

Continuous Evaluation Title: Assingment 1

(Eg. Assignment/Case Analysis/Project/Poster Presentation/Case Study, etc)

Date of Allotment:7/11/2020 Date of Submission:15/11/2020

Type of Assignment: Individual

(Individual/Group)

Student PRN Number:20021241103

Student PRN Number:

Student PRN Number:

Declaration:
I declare that this continuous evaluation component is my/our original work. I/we have not
copied from any source or any other students work. We have acknowledged the source, if any
content is used in completion of this continuous evaluation component. I/we are responsible
for any discrepancies/unfair means content/copied material presented in the assignment/case
analysis.

Note: Students are not allowed to disclose their identity in the assignment/case
analysis/project. Failing which lead to the unfair means practice and necessary action will be
initiated.
ANSWER 1 A:-
Price of Soda Pop = $1
Price of Movie =$1
If it use all their income on Soda pop and movies, the equation for budget line will be
[(No. of Movies) x Price (movie)] + [(No. of Soda pop) x Price (Soda pop)] = 10
The graph that represents the budget line if they use all their budget on movies
And soda pops.

ANSWER 1 .B:-
It is given that at equilibrium the individual consumes 7 soda pops and 3 movies, which
means this is the best combination of the goods that the company wants the individual to
consume, as above or below this point there will be disequilibrium which tends to excess
demand or excess supply respectively. This disequilibrium may create prices to change.
At point A
Slope of the budget line is 1
Also as point A is equilibrium
Therefore, (MUmovies / Pmovies) = (MUsodapop / Psodapop)
Point A is the point where the budget line is tangent to the indifference curve, which implies
that the optimal combination of goods is achieved at point A. Also at this point the marginal
rate of substitution (MRS) is equal to the opportunity cost or relative price of the two goods,
as
indicated by the slope of the budget constraint.
The representation of the same is shown below

ANSWER 1.C :-
ANSWER 1.D:-
When income increases from $10 to $15, the budget line shifts towards right. As the
goods are normal goods, now the consumer wants more of the goods.
The consumer now shifts to a higher indifference curve where the consumer enjoys a better
combination of soda pops and movies.
ANSWER1.E:-
when the price of soda rises to $2 and price of movies remains $1, the
budget line rotates such that the point of intersection of the budget line on the x-
axis remains the same and the point of intersection of the budget line with the y-
axis falls down. Now movies are relatively cheaper that soda pops. Therefore individual now
buy more of a movie as compared to soda pops.
Equation for Budget line =Movies*P(Movies) + Soda pop*P(Soda pop) = 10
Movies + 2*Soda pop=10