Advanced Placement (AP)
Advanced Placement (AP), 10.06.2021 01:30, unkn03n78

A. Susan buys bread rolls and cheese. One bread roll costs £1 and cheese costs £3 per 500g block. Susan has £12 income to spend on bread and cheese. Draw Susan's budget constraint and a possible indifference curve. Explain the assumptions behind the shape of the indifference curve you have drawn. If the price of bread falls to £0.80 per bread roll, how will this affect her purchases? Answer in words and graphically, clearly indicating Income and substitution effects of the price change If Susan only enjoys bread and cheese when she has 500gpf cheese for every bread roll that she eats, draw her indifference curves (on a new graph). How much bread and cheese should she buy to maximise her utility? Assume Susan has £12, one bread roll costs £0.80, and cheese costs £3 per 500g block. B. Now let's assume that Susan grows 100 potatoes each year and all of her income comes from selling them. She spends all her Income each year consuming potatoes and other goods. For Susan, potatoes are a Giffen good, in that if her income is fixed in some way (i e. ignoring the fact that she sells potatoes and just fixing her income at some value) her consumption of potatoes will rise when their price rises. The price of potatoes falls and she consumes more potatoes. Taking into account the fact that her income actually comes from selling potatoes, explain how the last statement can be consistent with those that precede it.​

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A. Susan buys bread rolls and cheese. One bread roll costs £1 and cheese costs £3 per 500g block. Su...

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