Problem 1. In 1999, the bidding for a human kidney offered on the Internet auction site eBay hit $5.7 million before the company put a stop to it citing a federal law that makes it illegal to sell one's own organs. Using a supply and demand graph, explain this bidding phenomenon given that the federal law mandates a price of zero for the sale of body organs.
Problem 2. Suppose that Thurston, a color blind consumer, has $80 to spend on either pink or lime green sweaters. Thurston does not care what color sweater he wears but deems it very important to buy as many sweaters as possible with the $80. Pink sweaters cost $40 each and lime green ones cost $20 each.
a. Draw Thurston's budget line and indifference map. What is Thurston's optimal consumption choice?
b. A sale on pink sweaters begins: if a consumer buys two pink sweaters at the regular price, he or she can get two additional pink sweaters for free. Two pink sweaters must be purchased to get the deal. Otherwise prices are unchanged. With the sale, depict Thurston's new budget line and prefferred consumption point.