6. [1] (Chapter 8) Charlie's utility function is XAXB. The price of apples is $1, the priceof bananas is $2, and his incomeprice of bananas and income stayed constant, the substitution effect on Charlie's appleconsumption would reduce his consumption by$40. If the price of apples increased to $8 and the(а) 17.5 арples(b) 7 аpples(c) 8.75 apples(d) 13.75 аpples(e) None of the above.

Answered: Image /qna-images/answer/7d823e89-01f1-4249-80f2-66c7374efd46.jpg

Answered: 6. [1] (Chapter 8) Charlie's utility…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. The elasticity of substitution will be a lower number: (a) The less curved is the indifference curve (b) The more curved is the indifference curve (c) The greater the income elasticity of demand of the good on the horizontal axis (d) The greater the degree of substitutability between the two goods (e) If tastes are both homothetic and quasilinear
2. Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Amy's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Amy spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 45 hours (and thus has 55 hours of leisure) and earns $250 per week. Use the grey point (star symbol) to indicate Amy's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. ? CONSUMPTION (Dollars per week) 1000 900 800 700 600 500 400 300 200 100 0 0 10 20 30 40 50 60 70 80 LEISURE (Hours per week) 90 100 110 Initial bundle $200 Unemployment Benefits Equivalent Bundle, $100 Unemployment Benefits Equivalent Bundle Now, suppose that Amy is laid off, but she is eligible to collect unemployment benefits of $200 per week. Use the black point…
2. Income and substitution effects Manuel is an accountant who enjoys apples and pears. Suppose that the price of apples increases. As a result, even though Manuel purchases fewer apples, he actually purchases more pears than he would have before the price change. This phenomenon is known as the effect.
5) Consider indifference curves for the consumption of milk and chocolates (you may assume that both are 'goods'). The indifference curves are drawn with the number of chocolate bars on the horizontal axis and pints of milk on the vertical axis. Suppose that at every point, consumer A's indifference curve is flatter than consumer B's. What can you conclude about consumers A and B tastes and preferences?
3. [30+10] A consumer who consumes two goods and has the following utility function: U(x₁, x₂) = log(x₁ + 1) + log(x2 + 1), where ₁ and ₂ denote the monthly consumption of two goods. The consumer maximizes her utility subject to the following constraints: P₁x1 + P₂x2 ≤m, x₁ ≥ 0, X₂ ≥ 0, where p₁ > 0, p2 > 0 and m > 0. [Hint: Note that log f(x) = f(df (2).] 1_df f(x) dx (a) Write down the Kuhn-Tucker conditions for a point (x₁, x2) to solve the problem, and find all points that satisfy the conditions. Do any of those points solve the problem? (b) Show the above results by drawing indifference curves and budget set on the x₁x2 plane.
QUESTION 7 Assume the following is the budget equation for Courtney who spends her income between music concerts and movies: 86 Music Concerts + 85 Movies = 7216 If Music Concerts are measured on the vertical axis, what would be the slope of the budget line ? 2
Root beer Candy bars Quantity Total Marginal Quantity Total Marginal utility utility utility utility 0 0 0 0 0 0 1 60 60 1 80 80 2 110 50 2 150 70 3 150 40 3 200 50 4 180 30 4 230 30 5 200 20 5 240 10 6 210 10 6 240 0 Reference: Ref 6-9 (Table) Using the information in the table, assume the consumer has a weekly budget of $3, the price of a root beer is $1 and the price per candy bar is $0.50. The consumer maximizes utility by: purchasing three root beers. purchasing two root beers and two candy bars. purchasing six candy bars. purchasing four candy bars and one root beer.
2. Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Amy's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Amy spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 45 hours (and thus has 55 hours of leisure) and earns $250 per week. Use the grey point (star symbol) to indicate Amy's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. CONSUMPTION (Dollars per week) 1000 900 800 700 600 500 400 300 200 100 0 0 + 10 20 30 40 50 60 70 80 LEISURE (Hours per week) 90 U3 100 110 Initial bundle + $200 Unemployment Benefits Equivalent Bundle, $100 Unemployment Benefits Equivalent Bundle ?
11. (Originally #7 on Homework #3) Consider a consumer with the following information: At the optimal consumption bundle this consumer consumes 3 boxes of apples and 3 boxes of oranges. If the Marginal Rate of Substitution of Apples for Oranges is 6 at the optimal consumption bundle (MRSA0= 6), and the price of a box of Oranges is $1.80, what is the price of a box of Apples? Show how you found your answer.
5. (12) Max is stocking up on ice cream and cookies; ice cream costs $2 and cookies cost 50 cents ($.50). The marginal utility gained from each treat is given in the table below. If Max is a rational utility maximizer and has $8 to spend, how many of each treat will they purchase, and in what order? Show your work. Qice cream MU of ice Qcookies MU of cream cookies 1234567 40 1 9 32 2 9 26 3 7 18 4 5 8 5 3 6 6 3 4 7 1
8. Consumer surplus using utility curves Suppose Rina has an allowance of $44 to spend on movies and other goods each month (represented by hudget constraint CF). The following graph shows her initial utility (₁) at point A from spending $27 of her total allowance on three movies ($9 each) and the remaining $17 on other goods. Note: Select a point on the graph to see its coordinates. MONEY SPENT ON OTHER GOODS 60 R 00 40 30 10 0 0 D Р 9 G 18 MONEY SPENT ON MOVIES 45 81 Now suppose Rina's parents decide not to allow her to see movies. As a result, she now spends all of her allowance on other goods, moving her to point At this paint, her utility is, it was at point A. Although her parents do not want her to see movies, they don't want to reduce the overall utility Rina gets from her allowance; therefore, they decide to increase her total monthly allowance by just enough to make her as happy as she was when she was allowed to see movies. This amount is represented by the distance between…
4- An indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. Food Clothing a) Danyal is obsessed with food and clothes. Assume you have no knowledge of the budget line, what point would Danyal prefer to be at. b) Why can't two indifference curves not intersect, explain and illustrate your answer. c) As we move from point c to f, who's marginal rate of substitution declines.

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