Armando consumes two goods: grapes and wine. He can purchase both at the market and also possesses a technology that allows him to costlessly convert any quantity of grapes into the same number of units of wine. This technology is not reversible: there is no quantity of wine that he can convert to grapes. Thus, for example, if he purchases 4 units of grapes and 3 units of wine, he could consume any bundle (4 — s, 3 + s) with s € [0,4]. Armando's utility from consuming x units of grapes and y units of wine is u(x, y) = x²y. For each of the following questions, you may use, without proof, any results from the lectures for this course. 1 11* Cil

Armando consumes two goods: grapes and wine. He can purchase both at the market and also possesses a technology that allows him to costlessly convert any quantity of grapes into the same number of units of wine. This technology is not reversible: there is no quantity of wine that he can convert to grapes. Thus, for example, if he purchases 4 units of grapes and 3 units of wine, he could consume any bundle (4 — s, 3 + s) with s € [0,4]. Armando's utility from consuming x units of grapes and y units of wine is u(x, y) = x²y. For each of the following questions, you may use, without proof, any results from the lectures for this course. 1 11* Cil

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Armando consumes two goods: grapes and wine. He can purchase both at the market and
also possesses a technology that allows him to costlessly convert any quantity of grapes
into
the same number of units of wine. This technology is not reversible: there is no quantity
of wine that he can convert to grapes. Thus, for example, if he purchases 4 units of grapes
and 3 units of wine, he could consume any bundle (4 — s, 3 + s) with s € [0,4]. Armando's
utility from consuming x units of grapes and y units of wine is u(x, y) = x²y. For each of the
following questions, you may use, without proof, any results from the lectures for this course.
(a) Find Armando's Marshallian demand expressed in terms of the bundle he consumes (i.e.,
after any conversion of grapes into wine).
(b) Suppose a researcher who is not aware of Armando's technology for converting goods
observes, for each price vector, the bundle that Armando consumes (but not the bundle
he purchases). If this researcher assumes that Armando always spends all of his wealth,
will she think that his choices satisfy the Weak Axiom of Revealed Preference?

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