###### Suppose the nominal interest rate is 3 percent, the cost of going to the ATM is \$1.50, you have a 12 percent probability of having your cash lost or…
September 3, 2020
###### Before Sarah quit her job as a carpenter, she was earning \$35,000 per year. She rented a building for \$12,000 per year and opened a cabinet shop.
September 3, 2020

Sarah’s utilities from consumption of two goods, hummus and falafel, are shown in the table below. Sarah’s daily income is \$23 and she spends her entire income on these two goods. Assume the price of hummus (PH) is \$2 and the price of falafel (PF) is \$5. Ounces of Hummus Total Utility from Hummus MUH MUH/PH Pieces of falafel Total Utility from falafel MUF MUF/PF 1 10 1 20 2 18 2 35 3 24 3 45 4 28 4 50 5 30 5 52 a. Fill in the columns. (4 marks) b. What is Sarah’s equilibrium consumption of hummus and falafel? What is her marginal utility per dollar spent on each good? (2 marks) c. If Sarah’s income increases to \$30, what will be her new equilibrium consumption of hummus and falafel be? What will the marginal utility per dollar spent on each good be? (2 marks) d. For Sarah, is hummus a normal or inferior good? How about falafel – is it a normal or inferior