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The document discusses consumer behavior and budget constraints. It provides examples of consumers in Germany and Canada making purchasing decisions based on relative prices of books and ebooks in each country. It also gives an example of a consumer's budget constraint and calculates their income based on consumption of books and DVDs at given prices. Finally, it discusses how a change in tax policy in 2012 impacted demand as between Amazon and brick-and-mortar stores by changing their relative prices.

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Awais (F-Name Jan Muhammad)
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27 views5 pages

Micro

The document discusses consumer behavior and budget constraints. It provides examples of consumers in Germany and Canada making purchasing decisions based on relative prices of books and ebooks in each country. It also gives an example of a consumer's budget constraint and calculates their income based on consumption of books and DVDs at given prices. Finally, it discusses how a change in tax policy in 2012 impacted demand as between Amazon and brick-and-mortar stores by changing their relative prices.

Uploaded by

Awais (F-Name Jan Muhammad)
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Q# 2

At the optimal point,

MRS = Ratio of prices

-2 = Price of z/Price of b

-2 = Price of z/6

Price of z = $12

consumer budget constraint will be

Income = Price of z *number of Z + Price of b*number of b

Income= 12(18) + 0

Income = 216

Thus consumer income is $216


Q#3

Let’s assume that both have same income and we also assume that Max is a German consumer and Bob
is a Canadian. We know that in Germany E-Books are expensive and Printed Books are expensive in
Canada. Therefore, German Consumer (Max) will be better off with more Printed books as they are
relatively cheaper after tax and vice Versa.
Q#4

Budget constraint is shown in the above graph.


The budget equation would be

M = Px.X + Py.Y

Where x is number of books consumed and y is number of dvds consumed. P is the price.

Now price of one book is $90 i.e Px = $90 and consumption of good X is 3

We know that price of book is 90 and consumption is 3 . on other hand price of dvd is 60 and
consumption is 4.5.
Therefore, the Income wil be as follows.

M = ( 90 × 3 ) + ( 60 × 4.5 )

M = $270 + $270  

M = $540
Charlie’s monthly income is 540$

So, if all the income is used on DVDs, then total number of 9 DVDs can be consumed from 540
Dollars as we know the price of per DVD is 60. So, 60*9 = 540 as shown in Diagram above.

On other hand 6 units of Books can be consumed from total 540 Dollars as price Is 90.

Q# 5
So, we know until 2012 Amazon products were relatively cheaper than BB as Government had not taxed
it as it did not have physical presence and BB had the physical presences so Consumers were better off
with Amazon and hence the equilibrium point e1 in the above diagram shows the goods (a1) demanded
of Amazing were greater than goods of BB (x1).

However, after 2012 and change in tax policy, consumer behavior shifted in favor of BB as it was
relatively cheaper to consumers and Amazon was expensive than before and the equilibrium point
changed to the new equilibrium point e2.

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