5. Consider Paola willingness to pay to obtain a specific good and her willingness to accept to trade the same good. Let her utility function be given by u(x1, x2) = x+ 0.5 0.5 a) Briefly explain why the willingness to pay and the willingness to accept for the same person over the same good may diverge. b) Assume that her wealth is given by w = 200 , and the price of good 2 is defined as P2 = 2, so that x = 100, if the demand for good 1 is zero. Derive the maximum willingness to pay and the minimum willingness to accept for 25 units of good 1, and identify which measure of value is larger? c) How does your answer change if instead we considered only 1 unit of good1?
5. Consider Paola willingness to pay to obtain a specific good and her willingness to accept to trade the same good. Let her utility function be given by u(x1, x2) = x+ 0.5 0.5 a) Briefly explain why the willingness to pay and the willingness to accept for the same person over the same good may diverge. b) Assume that her wealth is given by w = 200 , and the price of good 2 is defined as P2 = 2, so that x = 100, if the demand for good 1 is zero. Derive the maximum willingness to pay and the minimum willingness to accept for 25 units of good 1, and identify which measure of value is larger? c) How does your answer change if instead we considered only 1 unit of good1?
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
Related questions
Question
![5. Consider Paola willingness to pay to obtain a specific good and her willingness to accept to
trade the same good. Let her utility function be given by
0.5
0.5
u(x, x) = x+x5.
a) Briefly explain why the willingness to pay and the willingness to accept for the same
person over the same good may diverge.
b) Assume that her wealth is given by w =
P2 = 2, so that x = 100, if the demand for good 1 is zero. Derive the maximum
willingness to pay and the minimum willingness to accept for 25 units of good 1, and
identify which measure of value is larger?
200 , and the price of good 2 is defined as
c) How does your answer change if instead we considered only 1 unit of good 1?
d) Under which scenario are the measures of value almost the same? Accurately
motivate your answer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F993e5f67-ea50-4703-8143-22fb2104b7ad%2F9a1e497d-e344-4b6f-8bde-dc244c8a05d6%2Fgvx6woql_processed.jpeg&w=3840&q=75)
Transcribed Image Text:5. Consider Paola willingness to pay to obtain a specific good and her willingness to accept to
trade the same good. Let her utility function be given by
0.5
0.5
u(x, x) = x+x5.
a) Briefly explain why the willingness to pay and the willingness to accept for the same
person over the same good may diverge.
b) Assume that her wealth is given by w =
P2 = 2, so that x = 100, if the demand for good 1 is zero. Derive the maximum
willingness to pay and the minimum willingness to accept for 25 units of good 1, and
identify which measure of value is larger?
200 , and the price of good 2 is defined as
c) How does your answer change if instead we considered only 1 unit of good 1?
d) Under which scenario are the measures of value almost the same? Accurately
motivate your answer.
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