ECN 130 Summer 2014 Problem Set #1

1. You have $600 to spend on beans and rice. The price of beans is $40 and the price of rice is $30.

a. Graph your budget constraint with books on the vertical axis

b) Suppose that the government subsidizes beans such that each unit of beans are half-price, up to the

first 2 units (any additional units are full price). Graph your budget constraint in this circumstance.

2. Consider a free market with demand equal to Q = 100