1. Read carefully chapter 16 concerning general equilibrium analysis. Answer the following questions: In a general equilibrium analysis with two substitute goods, x and y, explain what would happen to the price in market x and y if supply of good y increased? How would your answer differ if x and y were complements? а. b. Can the utility possibilities frontier ever be upward sloping? Why? c. Explain how consumers in an economy can be made better off if the marginal rate of transformation does not equal consumers' marginal rate of substitution?

1. Read carefully chapter 16 concerning general equilibrium analysis. Answer the following questions: In a general equilibrium analysis with two substitute goods, x and y, explain what would happen to the price in market x and y if supply of good y increased? How would your answer differ if x and y were complements? а. b. Can the utility possibilities frontier ever be upward sloping? Why? c. Explain how consumers in an economy can be made better off if the marginal rate of transformation does not equal consumers' marginal rate of substitution?

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter5: Consumer Choice: Individual And Market Demand

Section: Chapter Questions

Problem 3DQ

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Answer the following short questions:a. Suppose that a consumer’s preferences between goods x andy are represented by the utility function u(x, y) = x^2 + 16xy + 64y^2. If these two goods have the same price, describe the optimal consumptionchoice of this consumer.b. Suppose that when the price of a good change, the incomeand substitution effects change the consumer’s demand for that goodin opposite directions.i. Is this good a normal or an inferior good? Explain.ii. Is this good a Giffen or an ordinary good? Explain.c. Is the following statement true or false? The differencebetween a monopolist’s marginal cost and its profit-maximizing price issmaller when the demand is more elastic.
1.There are two goods F and C. Let MU and P denote marginal utility and price of each good. SupposeMUF = 2,MUC = 1,PF = 1,PC = 2.Are you maximizing your satisfaction? If not, what would you do to increase your satisfaction? Explain. 2.What is the substitution eﬀect? Can it cause the quantity to decrease given a decrease in price? Explain 3.What is the income eﬀect? Can it cause the quantity to decrease given a decrease in price? Explain
If a good is free, when will a consumer stop wanting to buy the good? Once the total utility equals zero At the quantity where marginal utility is at its maximum Once the marginal utility equals zero When marginal utility is negative Once the marginal utility equals total utility What is used to measure a consumer's entire satisfaction or happiness of a choice? Total utility Marginal cost Marginal utility Total Revenue Total costs Which of the following best defines the term utility as it is used by economists? when a market allocates resources in a way that maximizes consumer and producer surplus
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Let the following table represents the total utility of a given consumer, in the cardinal utility approach A) Calculate the MUx and MUy and fill the table in the 4th and 5th rows. B) If the two products (X&Y) are free goods how many of X and Y should the cons consumer take to maximize utility? C) What is the maximum utility of X and Y if they are free?. D) Assuming the consumer has any amount of money (enough budget) how many of X and Y should the consumer buy, to maximize utility? E) What is the total utility of X and Y? F) Let now price of X is 4 birr per unit and price of Y is 2 birr per unit and budget of the consumer for consumption of X and Y is 20 birr. Given budget constraint how many of X and Y should the consumer buy to maximize utility? G) What are the total utility of X and Y
1.Let x and y denote the amount of goods X and Y. Find the demand functions of X (do not need to ﬁnd that of Y) when your preferences are represented by the utility function U = x^2y. Is X normal good? Can you conﬁrm law of demand for X? What is the relationship of X with Y? Answer all of them by using the demand curve you derived. 2.Let x and y denote the amount of goods X and Y. Find the demand functions of X (do not need to ﬁnd that of Y) when your preferences are represented by the utility function U = x + xy + y. Is X normal good? Can you conﬁrm law of demand for X? What is the relationship of X with Y? Answer all of them by using the demand curve you derived 3.There are two goods F and C. Let MU and P denote marginal utility and price of each good. SupposeMUF = 3, MUC = 4, PF = 2, PC = 2.Are you maximizing your satisfaction? If not, what would you do to increase your satisfaction? Explain.
Suppose consumer consume two goods. Can both goods be inferior? Can one of the goods be inferior? Explain your reasoning clearly. 19
a. What is Mika’s initial basket when the price of a Good X is $10? b. How much utility does this basket generate for Mika?c. What is Mika’s final consumption basket when the price of Good X increases to $15?d. Compute the values for the decomposition basket, B. e. Determine the numerical values of the substitution and income effects and graph your results.f. Is Good X normal or inferior goods for Mika? How do you know? instructions: answer question d,e and f only
explain how utility analysis leads to the law of demand.
TOTAL AND MARGINAL UTILITY Reset E UTILITY CALCULATIONS Total Utility Quantity Consumed 70 Total Marginal Utility Utility 60 50 40 22 30 22 20 18 10 40 14 4 6. 8 54 Quantity Consumed Marginal Utility 10 20 4 64 6. 10 5 70 1 3 4 2 -10 72 -20 -2 Quantity Consumed 70 Quantity Consumed -6 64 1 6. 8.