Intermediate Microeconomics Homework

1. Budget Constraint.

Antonio buys 8 new college textbooks during his first year at school at a cost of $50

each. Assume that he buys only new books. Used books cost only $40 each. When the

bookstore announces that there will be a 20-percent price increase in new texts and a

10-percent increase in used texts for the coming year, Antonio’s father offers him $80

extra. Is Antonio better off or worse off after the price change? (Hint: draw Antonio’s

budget lines before and after the price increase.)

Now suppose Antonio was also buying some old books before the price increase.

Does your answer change?

2. Budget Constraint.

Rashid is a frequent flier with a major airline. His fare is reduced by 25 percent after

he flies 30 000 km per year and then to 50 percent after he flies 60 000 km per year.

Draw Rashid’s budget constraint.

3. Budget Constraint

Alan consumes both tea and coffee. His weekly budget for coffee and tea is $10. Tea

always costs $1 per cup. Coffee is normally $2 per cup. This week Alan’s cafeteria

runs a promotional campaign: if Alan buys 3 cups of coffee he gets the fourth for

free. Draw Alan’s budget constraint with such promotional campaign.