Assignment ECON

3.5 Martha has $150 to spend each week and cannot borrow money. She buys Malted Milk Balls and the composite good. Suppose that Malted Milk Balls cost $2.50 per bag and the composite good costs $1 per unit. a) Sketch Martha’s budget constraint. b) What is the opportunity cost, in terms of bags of Malted Milk Balls, of an additional unit of the composite good? 3.6 In Problem 5, suppose that in an inflationary period the price of the composite good increases to $1.50 per unit, but the price of Malted Milk Balls remains the same. a) Sketch the new budget constraint. b) What is the opportunity cost of an additional unit of the composite good? 3.11 Eve likes apples but doesn’t care about pears. If apples and pears are the only two goods available, draw her indifference curves. 3.12 Koop likes food but dislikes cigarette smoke. The more food he has, the more he would be willing to give up to achieve a given reduction in cigarette smoke. If food and cigarette smoke are the only two goods, draw Koop’s indifference curves. 3.17 The federal government wants to support education but must not support religion. To this end, it gives the University of Notre Dame $2 million with the stipulation that this money be used for secular purposes only. The accompanying graph shows Notre Dame’s pre-federal-gift budget constraint and best attainable indifference curve over secular and non secular expenditures. How would the university’s welfare differ if the gift came without the secular-use restriction? 4.1. Why does the quantity of salt demanded tend to be unresponsive to changes in its price? 4.2. Why is the quantity of education demanded in private universities much more responsive than salt is to changes in price? 4.3. Draw Engel curves for both a normal good and an inferior good. 4.7 Summarize the relationship between price elasticity, changes in price, and changes in total expenditure.\ 4.8. Why don’t we measure the responsiveness of demand to price changes by the slope of the demand curve instead of using the more complicated expression for elasticity?