econ

ECON 104A: Intermediate Microeconomic

Theory

Homework #1

Due: Monday, 09 APR 2018

Jack is visiting the local store with $80 in his wallet. He is planning to spend all of his money on candy bar, which cost $5 each, and energy drinks, which cost $10 each (assume candy bar is on the x-axis and energy drink is on the y-axis).

1. De�ne Jack's budget line and show it in the graph.

2. Now suppose the store has a promotion on candy bars. Each customer may buy the �rst 5 candy bars at $3 each. The price of any extra candy bars will be at the original price ($5 each). What will be Jack's new budget line? Compare with the budget line in 1.

3. Instead having a promotion on candy bars, now the store is giving out coupon for energy drinks. After purchasing 2 cans of energy drink, cus- tomers will receive $2 dollar o� coupon on any additional energy drink they purchased (the price of candy bar is constant at $5 each). What will be Jack's new budget line? Compare with the budget line in 1.

1