6. Graduate students at University of Massachusetts consume only two goods: rentalapartment space (good x) and sandwiches (good y).2020:I = $3,000Px = $4Py = $6||X2021:I = $3,300Px = $5Py = $6Assume, in each year, all graduate students have the same income and face the same prices forapartments and sandwiches.However, graduate students have different preferences forapartments and sandwiches, but each student's preferences are consistent from year to year.Assume also that each student chooses his most preferred bundle given his budget set in eachyear.Denote the bundle in 2020 by (x, Yo) and this year's bundle by (x1» y1).What are the equations for their budget constraints in 2020 and 2021?а.b.What combination (bundle) of apartments and sandwiches is on graduatestudents' budget constraints in 2020 and 2021?On a carefully labeled graph with square feet on the horizontal axis, draw theс.budget constraints.d.Which students are better off this year, compared to last year? Which studentsare worse off this year, relative to last year?

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Answered: 6. Graduate students at University of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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H7. Consider an economy consisting of two consumers, Adam and Eve. There are two goods, apples and bananas. Adam likes apples and prefers more apples to less. He somewhat likes bananas: he prefers one banana to none, but is indifferent between having one banana and having more than one banana (i.e., he gets satiated with bananas after having one banana). Eve likes bananas and prefers more bananas to less; she is indifferent to apples. There are exactly 5 apples and 4 bananas available in this economy. Describe all Pareto optimal allocations in this economy. Explain.
4. Laffer Curve In the 1980s, President Reagan based his tax and spending policies on supply side economics. The idea behind supply side economics is the marginal tax rate is so high it discourages work. Cutting the tax rate would end up increasing tax revenue. We develop a simple model of this idea to determine the restrictions on the utility function required to generate a Laffer curve. Let 7 denote the tax rate, w the real wage rate, and n the labor supply. The tax revenue is T = wnT where wn is labor income, which is the tax base. For convenience, assume w is constant. There is no reason for this assumption to be true, but we impose it to focus on the restrictions on the utility function to generate the Laffer curve. As the tax rate T increases, workers substitute toward leisure and away from consumption. Hence as 7 rises, wn falls and tax revenue falls for high enough tax rates. Let U, V satisfy the standard assumptions. The model is static and households are endowed with one unit…
2. Problems and Applications Q3 Suppose that people consume only three goods, as shown in this table: 2023 Price Quantity 2024 Price Quantity Percentage Change Tennis Balls True False $2 100 $2 100 True Golf Balls Bottles of Gatorade Complete the following table by computing the percentage change in price for each of the three goods. False $4 100 $6 100 % $2 200 $3 200 Tennis Balls Golf Balls Bottles of Gatorade % Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is True or False: If you were to learn that a bottle of Gatorade increased in size from 2023 to 2024, that information would raise your estimation of the inflation rate. % % True or False: If you were to learn that Gatorade introduced new flavors in 2024, that would imply that the inflation rate you estimated is understated.
Give typing answer with explanation and conclusion 1) Suppose consumption bundle A contains 2 books and 5 candy bars, consumption bundle B contains 4 books and 4 candy bars, and consumption bundle C contains 3 books and 2 candy bars. Which of the following CANNOT be the bundle that a consumer likes the most? a.Consumption bundle B b.Consumption bundle C c.Consumption bundle A
Suppose that the least amount of goods and services that Jim will consume in a year is $40,000. Jim tends to save $0.30 of every dollar of disposable income that he makes. Use the given line to graph Jim's consumption function for disposable income levels between $0 and $200,000. Move each endpoint to the appropriate spot on the graph.
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NOTE: THIS IS FOR A NON-GRADED QUIZ. Louis has stable preferences and consumes two goods, wine and cheese. In 1994, the price of wine was $4/glass and the price of cheese was $2/ounce. Louis's income was $60 and he bought 12 glasses of wine and 6 ounces of cheese. In 1995, wine costs $2/glass and cheese costs $4/ounce. Louis's income is still $60. a. Draw both years' budget lines. Where do they cross? b. What is Louis's marginal rate of substitution of wine for cheese in 1994? [hint: you can't use calculus]
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3. Based on each scenario in this question, indicate whether the following statements is true or false, and briefly explain your reasoning. You may also want to use a graph in your explanation if you think it's necessary. a) Mike makes $500 per week and spends all her income on books and tea. Books cost $25 each, and Mike buys 16 each week. Tea costs $5 per cup, and Mike buys 20 cups. When Mike's income falls to $450 per week, he cuts his consumption of books by 3 books and purchases 5 more cups of tea. Based on Mike's consumption behaviors, books are an inferior good and Tea is a normal good. b) Lucy consumes food and clothing. For incomes near her current income, her income expansion path is negatively sloped. Assume that food is measured along the horizontal axis and clothing is measured along the vertical axis. Therefore, at current income levels, both food and clothing must be inferior good. c) For any normal goods, the income and substitution effects work in the same direction.…
3. Assume a person has a utility function U = XY, and money income of GH¢ 10,000, facing an initial price of X of GH¢ 10 and price of Y of GH¢ 15. If the price of X increases to GH¢15, answer the following questions: a. What was the initial utility maximizing quantity of X and Y? What is the new utility maximizing quantity of X and Y following the increase in the price of X? c. Calculate the substitution effect and the income effect on X of this increase in the price of X using the Slutsky analysis. b.

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