Multiple Choice
1. B
2. D
3. B
4. D
5. A
6. A
7. C
8.  D
9.  D
10. D
 

Problem #1

1. Budget constraint on graph
2.MU(B)= 0,600,520,500,0,350,0
MU(B)/P(B)=0,300,260,250,0,175,0
MU(M)=0,400,350,260,250,160,150
MU(M)/P(M)=0,800,700,520,500,320,300

3. 6milk, 1 Bagel   MU/p at equilibrium=300
graph

4. graph - BC rotates inward

5.  2bagels - thats all you can afford
 
 

Problem #2
1.$3.25,1000
2.at $3.75, surplus is 200
3. govnt buys surplus at 200($3.75)  =$750
4. consumers pay $3, suppliers keep $3.50,
5. (1050)($0.50)=$525

Essay
See class notes