University of Massachusetts Microeconomics Theory Questions

Question Description

I’m working on a economics question and need an explanation and answer to help me learn.

A consumer has preferences defined over Food and Shelter. The income of the consumer is $800/month and the prices of Food and Shelter are $50/lb and $25/sq yd, respectively. Draw the budget line. Show the affordable set and give an example of a bundle that is not affordable.Homer Simpson gets a monthly salary of $120, which he spends on donuts and other goods. The donut store charges a price of $2 per donut.a. Homer always consumes donuts with other goods: 2 units of other goods with 1 donut. Show the indifference map of Homer and determine his best affordable bundle. Briefly explain your method.b. The donut store changes its pricing policy. For the first 15 donuts, the price is still $2, but it is $1.50 per donut for purchases more than 15 donuts. Draw the budget line of Homer. Briefly explain your method.

Explanation & Answer:
2 Questions

Tags:
OPPORTUNITY COSTS

Relationship

food and shelter

budget curve

greater probability

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