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## 21 Jul Assume that shoes and socks are complements and both are normal goods

SEQ CHAPTER h r 1Homework 4

1. (5 points) Assume that shoes and socks are complements and both are normal goods.

(a) Please explain what will happen to the consumption of both shoes and socks if just the price

of shoes decreases.

(b) Please explain what will happen to the consumption of both shoes and socks if consumer

income increases.

For both (a) and (b), a graph may be included but is not necessary.

2. (5 points) Suppose a consumer derives satisfaction from consuming hamburgers and hot dogs. How will the budget line change when the consumer is offered a “buy two, get one free” deal for hot dogs (limit one free hot dog). Please label the graph.

3. (5 points)

(a) Please explain how “Buy one get one free” is different from a half price (50% off) sale.

(b) Please explain why a store would prefer a buy one get one free sale instead of a half price sale (50% off sale).

4. (5 points) Assume that a consumer consumers 2 goods, X and Y and both goods are inferior goods. Will the level of utility (satisfaction) as obtained from indifference curves still increase as you move outward from a lower indifference curve to a higher indifference curve (as the consumer moves outward from the origin as show by the arrow in the graph given below. Please give an explanation.

It is not necessary to include the graph in the answer. The graph has been given just to explain the question. It is not necessary to include the graph in the answer.

5. (5 points) Assume that the following graph show the indifference curve and budget line for a consumer who is choosing between “all other items” and “hand sanitizer”.

We know that the preferences and demand for hand sanitizer increased dramatically starting in mid-March 2020 due to the coronavirus pandemic. How would you show a change in preferences for hand sanitizer on the graph given above? Would the budget line change, or would the position of the indifference curve change? You may assume that income and prices of all other items and hand sanitizers did not change. Please give an explanation and show the changes on the graph.

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