Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 35

Suppose the person faced with the budget constraint described in problem has preferences for apples (A) and bananas (B) given by
a. If A = 5 and B = 80, what will utility be?
b. If A = 10, what value for B will provide the same utility as in part a?
c. If A = 20, what value for B will provide the same utility as in parts a and b?
d. Graph the indifference curve implied by parts a through c.
e. Given the budget constraint from problem, which of the points identified in parts a through c can be bought by this person?
f. Show through some examples that every other way of allocating income provides less utility than does the point identified in part b. Graph this utility-maximizing situation.
Problem Suppose a person has $8.00 to spend only on apples and bananas. Apples cost $.40 each, and bananas cost $.10 each.
a. If this person buys only apples, how many can be bought?
b. If this person buys only bananas, how many can be bought?
c. If the person were to buy 10 apples, howmany bananas could be bought with the funds left over?
d. If the person consumes one less apple (that is, nine), how many more bananas could be bought? Is this rate of trade-off the same no matter how many apples are relinquished?
e. Write down the algebraic equation for this person s budget constraint, and graph it showing the points mentioned in parts a through d (using graph paper might improve the accuracy of your work).