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2. Suppose there are only two goods: bread (G) and wine (G2). In 2006, the consumer had an income of $100. In 2007, the consumer again has an income of S100, but the absolute prices of bread and wine have risen. The consumers budget lines and his optima for two years are shown in the diagram below. wine 50 20 2006 bread 25 40 (1) Use the above information, calculate the absolute prices of bread and wine for the years 2006 and 2007. (SHOW YOUR WORK 2006: Pwead Pwine 2007: Phred (2) What are the slopes are of two badget lines (Pleasc.use.the prise ratios to calculate it.)? 2006 IPR 2007 1PR- 0) Can you mathematicaly express he two BL.t Plcase use G, to represent the quaniy of bread and G, to represent the quantity of wine. 2006 2007
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Answer #1

(a)

The market demand function is, generally, the sum of the two individual demand functions. Th individual is negative: in this case, you dont want to add a negative quantity to the total quantity demanded (you want to just add zeo). This gives us the following e exception occurs when the ty demanded by a particular r constructing the market demand function: X, +X, if X20and X 20 ifX,20and X.<0 İf X, < 0 and X,20 if X, < 0 and X2 <0 After plugging in the for X and X we obtain if P S5+0.2P +0.0051 and P S5+0.2P,+0.021 15-3Px +0.6Py 0.01, 0.0212 if P S5+0.2P +00051 and P >5+0.2Py 0.02 10-2P, +0.4Py 0.011 if P >5+0.2P 0.0051 and Pk S5+0.2P, +0.02/ 5-P 0.2P 0.02 if P >5+0.2R, +0.0051, 0 b. Graph the two individual demand curves (with Xon the horizontal axis and on the vertical axis) for the case l, = 1000, = 1000, and P, = 10. 12 24 27 X Using the individual demand curves obtained in part b, graph the market demand curve for total X. What is the algebraic equation for this curve? c. 15 51 X The algebraic equation for this curve was derived in part a: after plugging in 1000, 1000, and Py10, we obtain ifPx > 27

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