3. Juliette spends $48 each month on Oreo cookies (which cost $2 per package) and salt and vinegar chips (which cost $3 per bag). a) Suppose that the price of chips falls to $2 per bag and Juliette increases her chip consumption to 8 bags each month. Draw Juliette's new budget constraint and indicate her chosen bundle with an appropriately drawn indifference curve. Label her utility-maximizing bundle with the letter B. (Be sure to determine the right quantities of both chips and Oreos!) %3D %3D

3. Juliette spends $48 each month on Oreo cookies (which cost $2 per package) and salt and vinegar chips (which cost $3 per bag). a) Suppose that the price of chips falls to $2 per bag and Juliette increases her chip consumption to 8 bags each month. Draw Juliette's new budget constraint and indicate her chosen bundle with an appropriately drawn indifference curve. Label her utility-maximizing bundle with the letter B. (Be sure to determine the right quantities of both chips and Oreos!) %3D %3D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. Tim wants to maximise his utility given his utility function of U (A, B) = A² B¹. He faces the following prices and income: PA = 25; PB = 20; M = 250. However, a change in the price of good A to PA 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? = (a) Tim would require £54 less income (b) Tim would require £18.33 more income (c) Tim would require £10 less income (d) Tim would require £16.66 more income (e) Tim would require £16.66 less income
Paul loves hot drinks, and he has a part of his weekly budget earmarked for buying them. In the diagram below, you can find three examples IC1, IC2 and IC3 for indifference curves that represent Paul's preferences for tea and coffee, and three examples X, Y and Z for specific bundles of weekly tea and coffee consumption.
Q5. Jason has preferences defined over novels (good x) and DVDs (good y) described by the utility function U(x,y)= x2y2. He has an income of $120; novels cost $5 each, while DVDs are priced at $15 each. [Hint: MUx=2xy2, MUy=2x2y] a) Sketch Jason's budget constraint, indifference curves and the interior solution in a graph. b) Calculate Jason's optimal consumption bundle, and his maximized utility level. Suppose the price of novels increases to $7.5, while the price of DVDs and income are unchanged. c) Calculate his new optimal bundle, show it in the same graph from a), and interpret the Marginal Rate of Substitution (MRS) at this new optional bundle (point).
Emily is a utility maximizer. Her income is $100, which she can spend on cafeteria meals and on notepads. Each meal costs $5 and each notepad costs $2. At these prices Emily chooses to buy 16 cafeteria meals and 10 notepads. a) Draw a diagram that shows Emily’s choice using an indifference curve and her budget line, placing notepads on the vertical axis and cafeteria meals on the horizontal axis. Label the indifference curve, I1, and the budget line BL1. Make sure you calculate the endpoints of the budget constraint. b) The price of notepads falls to $1; the price of cafeteria meals remains the same. On the same diagram, draw Emily’s budget line with the new prices and label it BL2. c) Lastly, Emily’s income falls to $90. On the same diagram, draw his budget line with this income and the new prices and label it BL3. Is she worse off, better off, or equally as well off with these new prices and lower income than compared to the original prices and higher income?
Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of…
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When plotted Sarah's indifference curve for coffee and tea reveals parallel indifference curves that always have a slope of -1. Suppose that Sarah's budget constraint is 20 -1.5C+1.0T where C is the quantity of coffee and T is tea. If Sarah wants to maximize utility, she will buy: a) equal amount of coffee and tea b) coffee only c) tea only d) more coffee than tea e) a combination of coffee and tea cannot be determined from the information given
Suppose you have a $20 gift card and want to buy Blue and Red yarn. The utility function from yards of blue (B) and red (R) yarn can be expressed as follows: U(B,R) = 3B+R Red yarn costs $4 per yard. blue yarn costs $4 per yard. A) Graph the budget constraint and the indifference curves that can be reached. How many yards of each type of yarn will he purchase at these prices with his gift card?
Suppose that the only items you consume are bread and wine. If the price of bread were to increase tomorrow, and if simultaneously your income were to increase by just enough so that you were equally as happy tomorrow as today, what would happen to the level of your consumption of bread ? Illustrate your answer with indifference curves
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