A utility maximizing consumer with preferences u(x, y)-x¹/2y1/2 allocates 60 dollars towards the purchase of goods x and y. Prices are py-0.5 and px - 1. With the purchase of a discount card prices are py-0.5 and px - 0.25. Calculate the maximum fee the consumer should pay to purchase this card. Provide an Indifference Curve and Budget Line Diagram to illustrate and quantify the Substitution Effect (a to b) and Income Effect (b to c) of this price change. Quantify all intercepts and intersections.
A utility maximizing consumer with preferences u(x, y)-x¹/2y1/2 allocates 60 dollars towards the purchase of goods x and y. Prices are py-0.5 and px - 1. With the purchase of a discount card prices are py-0.5 and px - 0.25. Calculate the maximum fee the consumer should pay to purchase this card. Provide an Indifference Curve and Budget Line Diagram to illustrate and quantify the Substitution Effect (a to b) and Income Effect (b to c) of this price change. Quantify all intercepts and intersections.
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 13PAE
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