7.5 Suppose housing (H) and air quality (A) are the only two things entering into Jose's utility and Jose's utility function is U(H, A) = A × H. Suppose Jose's income is $10 and the price of housing is $2. a. If air quality is A = 2, how much housing will Jose purchase? Plot Jose's indifference curve and budget constraint through this point, showing how much housing is consumed. b. Suppose air quality rises to A = 4. Plot Jose's new indifference curve and new consump- tion point. c. How much would Jose be willing to pay to increase air quality from 2 to 4?
7.5 Suppose housing (H) and air quality (A) are the only two things entering into Jose's utility and Jose's utility function is U(H, A) = A × H. Suppose Jose's income is $10 and the price of housing is $2. a. If air quality is A = 2, how much housing will Jose purchase? Plot Jose's indifference curve and budget constraint through this point, showing how much housing is consumed. b. Suppose air quality rises to A = 4. Plot Jose's new indifference curve and new consump- tion point. c. How much would Jose be willing to pay to increase air quality from 2 to 4?
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.7P
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