Assignment:
1. A consumer has budgeted a total of $225 to spend on two goods, X and Y. She likes to consume a unit of good X in combination with good Y. Any unit of X she cannot consume with Y is useless. Similarly, any unit of good Y she cannot consume with good X is useless. The price of a unit of good X is $5, and the price of a unit of good Y is $10. How many units of each good will the consumer purchase? Briefly explain your reasoning.
2. Airlines give away millions of tickets each year through their frequent flyer programs, with the typical airline awarding a free ticket for each 25,000 miles flown on the airline. The average airline ticket costs $500 and is for a 2,500-mile round trip. Given this information, evaluate the following statement: Airlines could have the same effect on demand by eliminating their frequent flyer programs and simply lowering the average ticket price by 10 percent.