Running Head: Finance Student Name Student Id Affiliation Question one. a. Budget = $ 160 Bundles to be consumed. Meat (x) = $10 per unit and Potatoes (y) = $4 per unit. Amount to spent on Meat...

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Running Head: Finance Student Name Student Id Affiliation Question one. a. Budget = $ 160 Bundles to be consumed. Meat (x) = $10 per unit and Potatoes (y) = $4 per unit. Amount to spent on Meat purchase (x) = 10/14 x 160 = $ 114 Quantities of meat to be purchased = 114/10 = 11 Amount to be purchased on Potatoes = 4/14 x160 =$46 Quantities of potatoes to be purchased = 46/4 =11 John has a budget constrain because he can only afford 11.4 units of meat and 11 units of potatoes. If he wants to purchase more of meat, he will have to purchase less of potatoes. b. if the price of potatoes increases by $ 5 a unit then the optimum budget will change to: Amount to spent on Meat purchase (x) = 10/19 x 160 = $ 84 Quantities of meat to be purchased = 84/10 = 8 Amount to be purchased on Potatoes = 9/19 x160= $76 Quantities of potatoes to be purchased = 76/9 =8 For John to remain at equilibrium point, he will consume less of the two commodities 8units each. c. If John optimum bundle contains ten units of meat. Then: Budget = $160 Meat =$10 per unit Potatoes = $ 9 per unit Meat budget = $10 x10= 100 Potatoes budget =$ 60 Bundles of potatoes to be purchased = 60/9 = 6 John’s new optimal bundle will be 10 meat units and 6 potatoes units. d. i. Jane prefers Walnuts over Cashews because her preference order is: Walnuts Almonds Cashews. ii. The two bundles have the same taste and perfect substitute of each other. iii. June drove much satisfaction from the first Lemon sour and was willing to give more to obtain it. The subsequent Lemons came with fewer tests and he is willing to offer less mint in exchange. e. Budget = $ 210 Bundles to be consumed. Pie (x) = $5 per unit and Chips (y) = $2 per unit. Amount to spent on Pie purchase (x) = 5/7 x 210 = $ 150 Quantities of Pie to be purchased = 150/5 = 30 units Amount Chips to be purchased = 2/7 x210 =$60 Quantities of Chips to be purchased = 60/2 =30 units Jack optimal bundles will be 30 units for each commodity per year. Question two. Price Quantities demanded Quantities supplied 6 9 4 10 7 12 14 5 20 The slope of the demand curve =∆ Qty dd/∆Price 7-9/10-6 =-2/4 = -0.5 Inverse demand curve is given by equation. P =-0.5Qd + 14 The slope of the Supply curve = ∆Q ss/∆Price 12-4/10-6 8/4 = 2 Supply curve is given by equation. P = 2Qs + 6 b. Transposing the inverse demand curves in demand function. P =-0.5Qd + 14 0.5Qd =14-P 0.5/0.5 Qd = 14-P/0.5 Qd = -0.5P + 7 Transposing the inverse supply curve into supply function. P = 2Qs + 6 -2Qs= 6-P -2Qs/-2 = 6-P/-2 Qs = 0.5 P + 3 c. Equilibrium Price and quantity. Market is at equilibrium where quantity demanded = Quantity supplied. Qd = -0.5P + 7 Qs = 0.5 P + 3 At equilibrium Qs = Qd 0.5 P + 3 = -0.5P + 7 3-7 = -0.5P-0.5P -4 = -P P = $ 4 Equilibrium price = $ 4 Equilibrium Quantity= Qd = -0.5P + 7 -0.5 x 4 + 7 5units. d. Equilibrium Price and quantity. Market is at equilibrium where quantity