1. Snooki really enjoys both tanning herself and alcoholic drinks. She also gets a reported $100 per minute in appearance fees at events. Assuming that she works for 3 hours, and spends all of her money on only tanning and alcohol, please answer the following questions:
a. If the price of tanning is $8 per visit and the price of alcoholic drinks is $4/each, draw a diagram showing Snooki's budget constraint, being sure to indicate on your diagram both the maximum number of tanning visits and the maximum number of alcoholic drinks that Snooki can buy.
b. Suppose that Snooki visits the tanning salon 1,250 times, and purchases 1,750 alcoholic drinks with her money. Show this point on your diagram and add an indifference curve illustrating this choice. What can you infer about Snooki and her choice?
c. Now suppose that the price of tanning increases to $15 per visit. Draw in Snooki's new budget constraint and her new optimal consumption of tanning visits and alcoholic drinks assuming that she spends all of her money.
d. Finally, assume that people come to their senses and her appearance fee drops to minimum wage (round it to $10 per hour), show how this would alter her budget constraint (still assuming that she only works 3 hours) and her optimal consumption (i.e. use an indifference curve to show her new optimal choice) of tanning visits (assume that they are back to $8 per visit) and alcoholic drinks. (hint: you may want to use a fresh graph for this one as your graph from a-c is probably hard to read by now)
2. Alan Harper is concerned about his chiropractic business going forward, and would like your help in assessing how the following events will impact the market for chiropractic services. Specifically, he wants to know what impact the following events both individually, and cumulatively, will have on the market for chiropractic services (i.e. your answer should state that event x will cause the equilibrium price to ______ and the equilibrium quantity to _______ and cumulatively, events x, y and z will cause the equilibrium price to _______ and the equilibrium quantity to _______). The events are: 1) the new healthcare law entitles every person to 6 chiropractic visits per year courtesy of the government, 2) because of recent lawsuits, malpractice insurance for people offering chiropractic services increases, 3) the recession ends and incomes increase, and 4) the recession ending increases rent for businesses. Illustrate your answers with at least one graph.