Question

11. (20 points) Penny spends I$48 on cigarettes (xc and milk (xm). where the before-tax price of cigarettes is Pc $4/pack and the before tax price of milk is Pm-$2/carton. If cigarettes face a quantity tax of $2/pack and milk is not taxed at all, what is the slope of Penny's budget constraint over (xc, xm) bundles (so Хс is on the horizontal axis)? (Don't forget to include a minus sign when entering your answer!) 12. Jack in the Box recently estimated own-price elasticity of demand for large drinks to be-2.4 What percent decrease in unit sales of large drinks will result from a 1% increase in the price of large drinks? [Enter only a positive number. If the answer cannot be determined with this information, enter 99 as your answer 13. Jack in the Box recently estimated cross-price elasticity of demand for large drinks with respect to the price of medium drinks to be 4.6. What percent increase in unit sales of large drinks will result from a 1% increase in the price of medium drinks? [Enter only a positive number. If the answer cannot be determined with this information, enter 99 as your answer] 14. Jack in the Box recently estimated the cross-price elasticity of demand for large drinks with respect to the price of fries to be -3.1. What percent decrease in unit sales of large drinks will result from a 1% increase in the price of fries? [Enter only a positive number. If the answer cannot be determined with this information, enter 99] 15. Using the information from question 14: what percent decrease in unit sales of fries will result from a 1% increase in the price of large drinks? [Enter only a positive number. If the answer cannot be determined with this information, enter 99 16. Jose's demand for good I is given by xi(P,P2, /) - )-m. True, False or Cannot be Determined P. P +P CBD): For Jose, good 1 is a normal good 17. Dave's demand for good 2 is given by xi(P, P2 True, False or Cannot be P2 P2 Determined (CBD): For Dave, good is a substitute for good 2.

Answer 1

A budget line shows all possible combinations of two goods that could be purchased, given the level of income of a consumer and the price of goods. It is expressed in the following form: M = xP_x + yp_y Here, 'M' is the income level 'x' = Good 'X', measured on horizontal axis V = Good 'Y' = measured on vertical axis 'p_x'- Price of good X 'p_y'- Price of good Y Suppose a consumer has $48, which she spends either on cigarettes or milk. A pack of cigarettes costs $4 and a carton of milk costs $2. The budget line is represented as follows: M = cP + mp_m 48 = 4c + 2m