(A) Suppose an individual who derives utility u(x, y) from consuming a units of the good X and y units of the good Y. Prices of goods X and Y are respectively Pr = 1 and Py = p. Furthermore, the individual has a budget m. What is the demand for Y if the utility function is: u(x, y) = min{x, ay}. (a) y(p, m) = am (b) y(p, m) = (c) y(p, m): = (d) y(p, m) = = am a+p m a+p m 1+p
(A) Suppose an individual who derives utility u(x, y) from consuming a units of the good X and y units of the good Y. Prices of goods X and Y are respectively Pr = 1 and Py = p. Furthermore, the individual has a budget m. What is the demand for Y if the utility function is: u(x, y) = min{x, ay}. (a) y(p, m) = am (b) y(p, m) = (c) y(p, m): = (d) y(p, m) = = am a+p m a+p m 1+p
Chapter21: Demand: Consumer Choic
Section: Chapter Questions
Problem 1E
Related questions
Question
![(A) Suppose an individual who derives utility u(x, y) from consuming a units of the good
X and y units of the good Y. Prices of goods X and Y are respectively p = 1 and
Py = p. Furthermore, the individual has a budget m. What is the demand for Y if
the utility function is: u(x, y) = min{x, ay}.
(a) y(p, m) = am
(b) y(p, m) =
=
(c) y(p, m)=
(d) y(p, m) =
=
am
a+p
m
a+p
m
1+p
(B) Same setup as (A) with u(x, y) = ax + y and ap<1. What is the demand for X?
(a) x(p, m) = m
(b) x(p, m) = 0
(c) x(p, m) = m
(d) x(p, m) = am
(C) Suppose a normal good X. Its price increases from pa to p > Pr. The quantity
demanded of good X is q. Which of the following is true ?
(a) The substitution effect increases q but the income effect decreases q and over-
come the substitution effect. Overall q decreases.
(b) The substitution effect decreases q but the income effect increases q
come the substitution effect. Overall q increases.
and over-
(c) Both the income and substitution effects increase q. Overall q increases.
(d) Both the income and substitution effects decrease q. Overall q decreases.
(D) Suppose an inferior good X (not Giffen). Its price increases from pr to pr> Pr. The
quantity demanded of good X is q. Which of the following is true ?
(a) The income effect increases q but the substitution effect decreases q and over-
come the income effect. Overall q decreases.
(b) Both the income and substitution effects decrease q. Overall q decreases.
(c) The substitution effect decreases q but the income effect increases and over-
come the substitution effect. Overall q increases.
(d) Both the income and substitution effects increase q. Overall q increases.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe60d55ac-47b9-4417-a88d-6d498d9f3409%2F9db87388-91c7-41cc-9da9-be72c0fb0e88%2Fp09bgu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:(A) Suppose an individual who derives utility u(x, y) from consuming a units of the good
X and y units of the good Y. Prices of goods X and Y are respectively p = 1 and
Py = p. Furthermore, the individual has a budget m. What is the demand for Y if
the utility function is: u(x, y) = min{x, ay}.
(a) y(p, m) = am
(b) y(p, m) =
=
(c) y(p, m)=
(d) y(p, m) =
=
am
a+p
m
a+p
m
1+p
(B) Same setup as (A) with u(x, y) = ax + y and ap<1. What is the demand for X?
(a) x(p, m) = m
(b) x(p, m) = 0
(c) x(p, m) = m
(d) x(p, m) = am
(C) Suppose a normal good X. Its price increases from pa to p > Pr. The quantity
demanded of good X is q. Which of the following is true ?
(a) The substitution effect increases q but the income effect decreases q and over-
come the substitution effect. Overall q decreases.
(b) The substitution effect decreases q but the income effect increases q
come the substitution effect. Overall q increases.
and over-
(c) Both the income and substitution effects increase q. Overall q increases.
(d) Both the income and substitution effects decrease q. Overall q decreases.
(D) Suppose an inferior good X (not Giffen). Its price increases from pr to pr> Pr. The
quantity demanded of good X is q. Which of the following is true ?
(a) The income effect increases q but the substitution effect decreases q and over-
come the income effect. Overall q decreases.
(b) Both the income and substitution effects decrease q. Overall q decreases.
(c) The substitution effect decreases q but the income effect increases and over-
come the substitution effect. Overall q increases.
(d) Both the income and substitution effects increase q. Overall q increases.
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