ECO 101A: INTRODUCTION TO ECONOMICS, Tutorial Assignment Date: 07-09-2022 Questions: 1) why is it always optimal to choose the basket of goods only on the budget line? 2) Manish is a under graduate student who receives Rs 1000 for each month as a pocket money from his family. He uses this money to pay rent for one BHK flat and to go to the theatre. In the near town where the college is located, each square foot of flat costs Rs 2 per month, The price of a movie ticket is Rs 10 per ticket. Let x denote the square feet of flat, and let y denote the number of movie tickets he purchases per month, a) What is the expression for Manish’s budget constraint? b) Draw a graph of Manish’s budget line. ) What is the maximum number of square feet of flat he can purchase given his monthly pocket money? d) What is the maximum number of movie tickets he can purchase given his monthly pocket money? €) Suppose Manish’s family increase his pocket money by 10 percent. At the same time, suppose that in the college town he lives in, all prices, including rental rates of flat and movie ticket prices, increase by 10 percent. What happens to the graph of Manish’s budget line? James is used to consume only apples and orange fruits. He reveals that his monthly budget for these two fruits will be Rs 50, In the market one unit of apple costs Rs 0.25, while one unit of orange costs Rs 0.50. Let y denote the quantity of oranges and x denote the quantity of apples that James consume. a, What is the expression for James’s budget constraint and its graph? b. Show graphically how James’s budget line changes if the price of apples increases to Rs 0.50. d. Show graphically how James’s budget line changes if the price of oranges decreases to Rs 0.25. 4) Assume Ankita purchases only two goods, Chips (C) and Ice-cream (I). a) What is the relationship between MRScz and the marginal utilities MUc and MU; ? b) Draw a typical indifference curve for the case in which the marginal utilities of both goods are positive and the marginal rate of substitution of chips for ice-cream is diminishing. Using your graph, explain the relationship between the indifference curve and the marginal rate of substitution of chips for ice-cream, ©) Suppose the marginal rate of substitution of chips for ice-cream is constant. In this case, are chips and ice-cream perfect substitutes or perfect complements?5) 6) 1d 4) Suppose that Ankita always wants two packets of chips along with every ive- cream, Draw a typical indifference curve, In this case, are chips and ice-cream perfect substitutes or perfect complements? Explain the different properties of indifference curve? Below are given the different types of consumer preferences. Draw indifference curves for each preference. a) Pooja like both butter and jam, and always get the same additional satisfaction from a unit of butter as she does from 2 units of jam. b) Pooja like butter, but neither like nor dislike jam, ©) Pooja like butter, but dislike jam. 4) Pooja like butter and jam, but she only wants 2 ounces of butter for every ounce of jam. Given the utility function U(x, y) = 6x + 2y, with MUx = 6 and MUy = 2. a) Is the assumption that more is better satisfied for both goods? b) Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x? Explain, c) What is MRSx, y? 4) Is MRSx, y diminishing, constant, or increasing as the consumer substitutes x for y along an indifference curve? ¢) Ona graph with x on the horizontal axis and y on the vertical axis, draw a typical indifference curve (it need not be exactly to scale, but it needs to reflect accurately whether there is a diminishing MRSx, y). Also indicate on your graph whether the indifference curve will intersect either or both axes, Label the curve U1, f) On the same graph draw a second indifference curve U2, with U2 > UL