Ex. 1two goods. Market prices are given by p (PL.P2) and the consumer's income is given by y.A consumer has utility function U(11, 12) = 1*2 + 8 where zį and r2 are theSet up the utility maximization problem and derive the Walrasian demand for the two goods.• Compute the elasticity of the demand for good r2 with respect to income y. Which kind of goodis good z2?Compute the indirect utility function v(P: ) and verify its main properties.Ex. 2A firm produces output Z combining input X and Y according to the followingtechnology:Z = f (X,Y) = K (aX² + (1-a) Y)The cost of input X is wx, while the cost of input Y is wy. The price of output Z is p. The firm isprice-taker both on the input markets and on the output market.Compute the conditional input demand function.Compute the elasticity of substitution. Interpret this quantity.• Compute the cost function. How does the cost function marginally change if you modify theprice of one input? Explain.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Utility over quantities of two goods is given by U(q1, q2) = q1 + In q2. Which of the following statements is always true about the demand functions for good 1 and good 2 if consumer faces prices pi and P2 and has income M? The demand function of good 1 does not depend on M. The demand function of good 2 does not depend on M. The demand level of good 1 is always greater than zero. The demand level for good 2 is always greater than the demand level for good 1. O None of the other statements are true.
For the same set of preferences as for question 5 in this problem set, what is the income elasticity of the Demand for good XA infinite
Sam is rich and at this high income level, her demand for good X is independent of income and given by X*=35.4- 6 px/Py where px and py denote respectively the price of good X and the price of good Y. Assuming the price of good Y is equal to 4.6, find the value of the price of good X at which the own- price elasticity of Sam's demand is equal to -6.
2.
Assume a piece of jewelry and 2 consecutive drops in its price. Also consider Sara’s demand to be relative elastic in the price range from P1 to P2, and that she perceives jewelry as a Giffen good in the price range from P2 to P3. Draw her price-consumption curve with well-behaved preferences. Clearly label your graph. please draw a clearly labeled graph with explanation
Nicanor's passion is good wine. If the prices of the other goods are constant, Nicanor's demand for a good Rioja is c = 0.04m – 2p, where m is his income, p is the price of Rioja and c is the demand for Rioja bottles. Assume that Nicanor has an income of $10,000 and that the price of a decent bottle of Rioja is $50. If the price of Rioja rises to $60, determine the income effect and the substitution effect on the demand for bottles of Nicanor wine.
10
Assume a piece of jewelry and 2 consecutive drops in its price. Also consider Sara’s demand to be relative elastic in the price range from ?1 to ?2, and that she perceives jewelry as a Giffen good in the price range from ?2 to ?3. Draw her price-consumption curve with well-behaved preferences. Clearly label your graph.
ECON302 TPS2: Demand Suppose that Graham enjoys painting green people. He has very particular preferences and must have exactly 3 gallons of yellow paint for each 2 gallons of blue paint. Let Y be the number of gallons of yellow paint and B be the number of gallons of blue paint. Also, let PÅ be the price of blue paint. Suppose Graham has $20 to spend on paint. Also, the price of yellow paint is Py = $1 per gallon. a) Graph Graham's price consumption curve for the prices PB = $1, and PB = 2, PB = $4. Please put the number of gallons of B on the vertical axis and the number of gallons of Y on the horizontal axis. Be sure to label your graph carefully and accurately.
Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorena’s income and the cost of other types of entertainment—in particular, how much it costs to go see a movie instead of playing golf. The three demand schedules in the table below show how many rounds of golf per year Lorena will demand at each price under three different scenarios. In scenario D1, Lorena’s income is $50,000 per year and movies cost $9 each. In scenario D2, Lorena’s income is also $50,000 per year, but the price of seeing a movie rises to $11. And in scenario D3, Lorena’s income goes up to $70,000 per year, while movies cost $11. a. Using the data under D1 and D2, calculate the cross-elasticity of Lorena’s demand for golf at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and golf substitute goods, complementary goods, or…
Show full answers to part a) b) & c)
Suppose that an individual has a Utility function represented by a CES function. The utility function of the individual is given as: U(x,y) = x1/2 + y1/2 c. Is the demand more elastic or inelastic than a Cobb-Douglas Utility function? Use the Slutsky matrix to illustrate.

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