Homework 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.

The college graduates of 2000 could hardly have asked for better luck. The unemployment rate lowered to 4.1% in May 2000 roughly the lowest level in a generation and employers were literally dying for new hires.Set up salaries rose many graduating seniors had many job offers and some firms even offered $10000- $20000 bonuses to students who signed the dotted line. 3 years later the job market for the Class of 2003 was rather different US economic growth had slowed to a crawl and then to a halt. Firms that had stocked up on recent college grads in the tighter labour markets of 1998-2000 found themselves with more than they knew what to do with in 2002 and 2003.They weren’t eager to hire more. Bonuses and other perks died job offers became thinner With the unemployment rate around 6% in May and June of 2003, the job market was far from the worst ever. But it was nothing like the glory days of 2000. Examine 2 fiscal policies and 2 monetary policies that the US government may have used to correct this situation.

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.