Dept. of Economics, Intl. Islamic University, Islamabad Microeconomics I Name & Reg # Group Members: Assignment No.1 Q #1: Ali was consuming 100 units of X and 50 units of Y. The price of X rose from 2 to 3. The price of Y remained at 4. (a) Write down the both budget equation for Ali. (b) How much would Ali's income have to rise so that he can still exactly afford 100 units of X and 50 units of Y? Q #2: Maryam's utility function is U(x,y) = 10.80,0.20 Suppose that the price of x is 5, the price of y is 10, and her income is 100. a) On the graph below, use blue ink to draw her budget line. b) Use LaGrange method, to choose the optimal bundle for Maryam. c) Also show optimal bundle graphically. Q #3: Suppose the demand function for a product is given by Q =10- 2P+ Ps, where P is the price of the product and Ps is the price of a substitute good. Suppose the price of the substitute good is Ps= $2.00 and P=S1.00 (a) What is the price elasticity of demand? (b) What is the cross price elasticity of demand? Q # 4: What do you understand by equi marginal principle? Discuss Q #5: For the following sets of goods draw two in difference curves, U1 and U2, with U2 > 11. Draw each graph placing the amount of the first good on the horizontal axis & good 2 on vertical axis. a) Burger and Sandwich (consumer likes both and has a diminishing marginal rate of substitution) b) Mango shake and Strawberry shake (consumer likes both and will accept one glass of mango shake or one glass of strawberry shake with equal satisfaction). c) Peanut butter & jelly (consumer likes exactly 2 ounces of peanut butter for every ounce of jelly). d) Olives (which the consumer neither likes nor dislikes) and ice cream (which the consumer likes). e) Apples (which the consumer likes) and liver (which the consumer dislikes).