Nicole's Consumption: Budget Constraints with Taxes and Gifts, Exercises of Microeconomics

Download Nicole's Consumption: Budget Constraints with Taxes and Gifts and more Exercises Microeconomics in PDF only on Docsity! CH3-2 Various Budget Constraints 1. Suppose Nicole consumes only two goods, gasoline and cigarettes. Her income is $120, the price of cigarettes per pack is $4 and the price of gasoline per gallon is $2. Currently, she consumes 40 gallons of gas. Sketch the following budget lines. (Put gas on the X axis.) Be sure to show how you calculated the slopes and end points. A. Graph this budget line first, before doing each of the following. Using an arbitrary convex indifference curve, indicate the current consumption combination is optimal. How many packs of cigarettes does she consume? B. If the government imposes a sales tax of $1 per unit on gasoline, Nicole will consume 28 gallons of gas. Docsity.com