Microeconomics Answers

For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $100. Each salad costs $5 and each smoothie costs $10.

a. Draw Wendy’s budget constraint.

b. What is the opportunity cost of purchasing one more smoothie? What is the opportunity cost of purchasing one more salad?

c. If the price of smoothies doubles to $20, what happens to Wendy’s opportunity set?

d. Describe intuitively how Wendy should make the optimal consumption decision.

Wheat and oats are used to make different types of breakfast cereal and both are grown on the prairies. Use appropriate diagrams in your answers.

a. What would happen to the supply and demand of oats if the price of wheat were to fall? What happens to the equilibrium price and quantity of oats?

b. What would happen to the equilibrium price of wheat and oats if there was a drought in the prairies?

Consider the market for ice cream in Paris. Using appropriate diagrams, explain how each of the following events will impact the equilibrium price and quantity of ice cream.

a. The population of Paris falls.

b. The cost of milk (an input in production) increases.

c. Both the population of Paris falls and the cost of milk increases at the same time.

Explain with the help of the diagram provided, how the government can internalize the negative externalities in production.

Are Keynes’s ideas still relevant today?”

Explain Keynes’s theory of investment and why it is central to his more general theory of output and employment. Are Keynes’s ideas still relevant today?”

Suppose that the consumer asked to contemplate a gamble with a probability of 60% of winning birr 10,000 with a utility of 10 utils and 40% probability of winning birr 15000 with a utility of 12 utils. What will be expected income

discuss each of the following statements from the standpoints of equity and efficiency.

a). everyone in society should be guaranteed the best health care possible.

b). when workers are laid off they should be able to collect unemployment benefits until they find a new job.

Should a perfect competitive firm produce if prices were less than the minimum level of

average variable cost, explain using diagram.

explain why is impossible to have upward sloping isoquant