1. In all cases where diagrams/graphs are required, provide manually (hand) drawn graphs/diagrams to support your answers. Note that answers with “cut and paste” graphs/diagrams from any source or graphs/diagrams not manually drawn will be given zero.
2. Provide complete and careful answers to all questions.
3. You are not required to type your answers. For your convenience, you may use ink pens (not pencils) to write and solve the problems and scan or save your work as a pdf for submission into GaView Assignments before the deadline. Late assignment or assignment not submitted in GaView “Assignments” will not be graded but assigned zero.
4. Students may contact/see the instructor during his office hours for assistance on the assignment.
- Consider the situation presented in question #12, Chapter 4 of the textbook and answer the following questions:
a. With “all other goods” as the dependent variable (on the vertical axis), derive the equation of the budget line from the given budget constraint. Clearly show your steps/calculations. Provide economic interpretations of the coefficients in your derived budget line equation.
b. Using the vertical axis for “all other goods,” manually draw the average consumer’s budget line in the absence of the Food Stamp Program.
c. On the same graph, show how the Food Stamp Program alters the average consumer’s equilibrium, given that food stamps cannot be legally exchanged for cash. Carefully explain.
d. On the same graph, show how the Food Stamp Program alters the consumer’s equilibrium, if food stamps can be illegally exchanged for cash. Explain.
- (a) Assume that in a typical year, a teenager purchases 100 song-downloads and buys 80 cheese pizzas subject to a given annual allowance. With the theory of consumer behavior, if cheese pizza is an inferior good, graphically illustrate (manually (hand) drawn graph/diagram) and carefully explain why a teenager would prefer a $50 cash gift over a $50 gift certificate at a local pizza store.
(b) In this case, explain why the local pizza store’s manager would prefer in-store gift certificates over cash redeemable gift certificates?
- You are a newly hired manager of a small manufacturing plant in a rural area where highly skilled labor is in short supply, despite the fact that your plant currently pays its workers $15/hour. In order to alleviate the problem of skilled labor shortage at your plant, you are considering instituting an overtime plan, where workers earn $15/hour for the first 8-hour work-shift per day and $22.50 for each hour worked beyond the regular 8-hour work-shift. Alternatively, you are considering a $7.50 increase in hourly wage for every hour worked by employees. Either plan would eliminate your plant’s problem, as production and profit levels are up by 35% each. Applying the theory of worker’s income-leisure choice, graphically illustrate (manually (hand) drawn graph/diagram) and carefully explain which plan you would implement, include the economic benefits of your plan in your explanation.
- Consider the situation presented in question #24, Chapter 4 of the textbook. Graphically illustrate (manually (hand) drawn graph/diagram) and carefully explain your answer.
- With the theory of consumer behavior, graphically illustrate (manually (hand) drawn graph/diagram) and carefully explain why an individual’s demand curve for an inferior good is downward sloping.