Homework Help is Here – Start Your Trial Now!
Business
Economics
(a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been?

(a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

urgently need

At least during 2020 international travel and vacationing was very re- stricted. National travel was also restricted as was things that one usually does on a vaction, e.g. going to a restaurant. Let's assume that a typical consumer has the following utility function over going on a vacation trip (v) and other consumption goods (0): U(v, 0) = v0.10,0.90 Assume that the relative price of a vacation trip in terms of other goods was equal to one (p = = 1) and the yearly disposable income of the average consumer was I= 300, 000kr. (a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been? (b) The restrictions to travel during the pandemic could be expressed in the way that the average consumer could not (was not allowed) to spend more than 5000kr (or equivalently consume more than 5000 units of v). If we assume that both income and the relative price of vacationing was unchanged during the pandemic. How much would the average consumer spend on vacationing and on other goods (given that she uses all her income)? What would her utility have been? Il- lustrate the consumer's utility maximization problem with and with- out the restriction on travel in a diagram, using the concepts of a budget constraint and indifference curves. (c) Assume that the authorities instead of introducing restrictions had put a tax on traveling that had reduced the demand for travel to the same level as the restriction (u = 5000). How high would the price of travel had been? How high would the tax have been? (d) If instead income had been taxed (and the prices had been un- changed), by how much would the disposable income have to change so that the consumer would reach the same utility level as with the restrictions in place? Calculate the income change which is equiva- lent to imposing the restriction (we may call this number the "cost" of the pandemic for the average consumer).
Transcribed Image Text:At least during 2020 international travel and vacationing was very re- stricted. National travel was also restricted as was things that one usually does on a vaction, e.g. going to a restaurant. Let's assume that a typical consumer has the following utility function over going on a vacation trip (v) and other consumption goods (0): U(v, 0) = v0.10,0.90 Assume that the relative price of a vacation trip in terms of other goods was equal to one (p = = 1) and the yearly disposable income of the average consumer was I= 300, 000kr. (a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been? (b) The restrictions to travel during the pandemic could be expressed in the way that the average consumer could not (was not allowed) to spend more than 5000kr (or equivalently consume more than 5000 units of v). If we assume that both income and the relative price of vacationing was unchanged during the pandemic. How much would the average consumer spend on vacationing and on other goods (given that she uses all her income)? What would her utility have been? Il- lustrate the consumer's utility maximization problem with and with- out the restriction on travel in a diagram, using the concepts of a budget constraint and indifference curves. (c) Assume that the authorities instead of introducing restrictions had put a tax on traveling that had reduced the demand for travel to the same level as the restriction (u = 5000). How high would the price of travel had been? How high would the tax have been? (d) If instead income had been taxed (and the prices had been un- changed), by how much would the disposable income have to change so that the consumer would reach the same utility level as with the restrictions in place? Calculate the income change which is equiva- lent to imposing the restriction (we may call this number the "cost" of the pandemic for the average consumer).
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS