A consumer initially maximizes utility at point A with income of Y = $150 spent oncoffee and biscuits. Then, suppose income increases, shifting the budget14.00-constraint fromL' to L, where the consumer maximizes utility at bundle B.12.00-Using the new level of income, calculate the income elasticity of coffee (Ee)10.00-between bundle A and bundle B.ICEcoffee = (Enter a numeric response using a real number rounded to twodecimal places.)8.006.00-4.00-2.00-0.00-0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00Coffeeétv21MacBook AirDIIDD80F11F10F6F7F8F4F5F2F3F123$%&@578{QWTAFJKく>CVMcommandoptionroloptioncommand...-レこのBiscuitsRピ

Answered: A consumer initially maximizes 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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Please do section (b) and c not attempt a
Suppose we observe that an individual's demand for good 1 is: 1/(2p,+p2) (where I- income). From this we can conclude that: Goods 1 and 2 are perfect complements O The price of good 1 is higher than the price of good 2 Two answers are correct O Goods 1 and 2 are perfect substitutes Three answers are correct No answer is correct Goods 1 and 2 are normal goods O These goods may be perfect substitutes or perfect complements, it depends upon the utility function
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.
Suppose you find that MU1(X1Xx2)=2x2 and MU₂(x1+x₂)=2x1. What is the rate at which the consumer is willing to trade good 2 for good 1 at bundle (2,4)? (Note: enter a positive number, i.e. enter the quantity of good 2 that the consumer is willing to give up for an additional-marginal-unit of good 1.) Question 20 Suppose you find that the expressions of the marginal utilities for a consumer are given by MU1 (1,2)= 2 and MU₂ (1,2)= 7. Then you can conclude that: This consumer has Cobb-Douglas tastes For this consumer good 1 and good 2 are perfect complements For this consumer good 1 and good 2 are perfect substitutes None of the above Question 21 Suppose a consumer is always willing to give up 5 units of good 2 for an additional unit of good 1. For this consumer: Good 1 and good 2 are perfect complements Good 1 and good 2 are perfect substitutes Good 1 and good 2 are both essential goods None of the above
4. Maximize utility U = xy subject to 4x+3y=60, where x and y are the two consumption goods, 4 is the price of good x, 3 is the price of good y, and 60 is the budget. a) Set up the Lagrangian objective function. How much is the utility-maximizing consumption bundle? b) Show that the second-order condition/s is/are met (Use |Ħ₂ to identify whether it is a maximum or a minimum). c) What is the maximum utility?
Your preferences are represented by the utility function U = (x9.5 + x2:5)², where the price of good 1 is 4 PHP and the price of good 2 is 3 PHP. Your income is given by 50 PHP. • Set up the Lagrangean function for this utility-maximization problem with constraint. Compute for the utility-maximizing quantities of x₁ and 22. • What is the maximum level of utility you can attain given your utility function and budget con- straint?
Question 8 Note: This question is similar to end-of-chapter problem 3.2 and it is restated here in a multiple choice format. For a utility function for two goods to be strictly quasi-concave (i.e. convex indifference curves), the following condition must hold: UxxU²x - 2UxyUxUy + UyU² 0: the function is strictly quasi- concave. O Because all of the first order partial derivatives are positive, we must only check the second order partial derivatives. Uxx, Uyy, Uxy > 0: the function is not necessarily strictly quasi-concave. Because all of the first order partial derivatives are positive, we must only check the second order partial derivatives. Uxx = Uyy = 0, Uxy > 0: the function is strictly quasi- concave. O Because all of the first order partial derivatives are positive, we must only check the second order partial derivatives. Uxx = Uyy = 0, Uxy < 0: the function is not strictly quasi-concave. Question 10 Note: This question is similar to end-of-chapter problem 3.5a and it is…
Draw the following scenario: Assume a piece of jewelry and 2 consecutive drops in its price. Also consider Alia’s demand to be relative elastic in the price range from ? 1to ? 2, and that she perceives jewelry as a Giffen good in the price range from ? 2to ? 4. Draw her price-consumption curve with well-behaved preferences. Clearly label your graph. The graph may be something like this:
To determine the utility maximizing consumption of two products one uses the formula that is called the rule for maximizing utility: OP1/P2-MU1/MU2 which also is stated as MU1/PU1-MU2/P2.. OExplains the Diamond-Water Paradox. O Calculates the utility maximizing consumption of the two goods. All of the above are correct. None of the above are correct.
12 There are two goods and John's preferences can be represented by u: R²0 R given by u(x) = x₁³x2³. His income and price of the two goods are given by (M, P1, 20 P2) = (12, 1, 2). Which 2 of the following 8 options are false: In John's optimal bundle, he consumes the same amount of good 1 as good 2. If we change John's utility function to u(x) = x + then John's optimal bundle remains unchanged. At John's optimal bundle, the slope of the budget constraint equals the slope of the indifference curve. In John's optimal bundle, he spends the same amount on good 1 as good 2. John's preferences satisfy local non-satiation. At John's optimal bundle, his bang per buck of good 1 equals his bang per buck of good If we change John's utility function to u(x) = In (17 +x₁x₂) then John's optimal bundle remains unchanged. If we change the budget set to (M, P1, P2) = (24, 2, 4) then John's optimal bundle remains unchanged.
I. A)MRS=1/3, B)MRS=1/4, C)MRS=4/3, D)MRS=12 II. A)Rhea should buy more bread, less milk, B)Rhea should buy more milk, less bread, C) Rhea maximizes her utility at bundle A, so she should not change her consumptions of either good, D) Rhea cannot afford bundle A, so she should buy less of both goods III. A)Rhea's MRS at bundle A is greater than the price ratio (Pb/Pm), B)Changing her bundle moves Rhea to a higher indifference curve, C)The slope of the indifference curve (where bundle A is found) is not equal to the slope of Rhea's budget constraint, D)All of the above statements explain your answer to part II.
John’s preferences for apples (A) and berries (B) are represented by U(A,B)= A+2B . Apples cost £2 and berries £1. Given that John’s monthly income is £30 answer the following questions: What type of goods are apples and berries for John? What is the proportion to which John is willing to exchange apples for berries? Illustrate and solve graphically John’s utility maximization problem. If his income increases every month by £10, how will John’s consumption choice be affected? Illustrate graphically the income expansion path and the Engel curve for each good. How will an increase in the price of berries to £6 affect John’s optimal consumption choice? (John’s income is £30) Graph John’s demand curve for each good. Assume that John wins a voucher of £20, redeemable only in apples. How would this affect John’s utility? (Assume that prices and income are as described initially) Assume that John is presented with two options: an apple voucher of £20 or just £6 to spend on any good he wants.…

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