Show full answers for part a), b), c), d), e) and f) y.Carlos is a college student with utility function of the form u(x, y) = 2x +a) Draw (with scale) his indifference curves for utility levels of U = 10, U = 20, U = 30and U = 40. Label these indifference curves as U10, U20, U30 and U40, respectively. Intotal you have to plot 4 indifference curves on the same graph.b) Assume Carlos is facing px = $20, py = $5 and I = $100. Write the equation of hisbudget line. On the graph from part (a) draw (with scale) his budget line and label it asBL₁.c) Look at your graph. Given the indifference curves you have drawn in part (a) and thebudget line drawn in part (b), what bundle would Carlos optimally choose if facing BL₁?Plot this bundle and label it as A.d) Next, assume the price of x decreases from px = $20 to px = $5, while the price of y andCarlos's income remain unchanged. Write the equation of the new budget line. On thesame graph than in parts (a) and (b) and (c) draw (with scale) his new budget line andlabel it as BL2.e) Look again at your graph. Given the indifference curves and the new budget line drawn inpart (d), what bundle would Carlos choose to maximize his utility if facing BL₂? Plotthis optimal bundle and label it as B.f)Interpret how the change in the price of x has affected Carlos's optimal choice.Note: This exercise requires to do all the asked drawings on the same graph.

Answered: Carlos is a college student with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Concept explainers

Question

Show full answers for part a), b), c), d), e) and f)

y.
Carlos is a college student with utility function of the form u(x, y) = 2x +
a) Draw (with scale) his indifference curves for utility levels of U = 10, U = 20, U = 30
and U = 40. Label these indifference curves as U10, U20, U30 and U40, respectively. In
total you have to plot 4 indifference curves on the same graph.
b) Assume Carlos is facing px = $20, py = $5 and I = $100. Write the equation of his
budget line. On the graph from part (a) draw (with scale) his budget line and label it as
BL₁.
c) Look at your graph. Given the indifference curves you have drawn in part (a) and the
budget line drawn in part (b), what bundle would Carlos optimally choose if facing BL₁?
Plot this bundle and label it as A.
d) Next, assume the price of x decreases from px = $20 to px = $5, while the price of y and
Carlos's income remain unchanged. Write the equation of the new budget line. On the
same graph than in parts (a) and (b) and (c) draw (with scale) his new budget line and
label it as BL2.
e) Look again at your graph. Given the indifference curves and the new budget line drawn in
part (d), what bundle would Carlos choose to maximize his utility if facing BL₂? Plot
this optimal bundle and label it as B.
f)
Interpret how the change in the price of x has affected Carlos's optimal choice.
Note: This exercise requires to do all the asked drawings on the same graph.

Expert Solution

Step 1: Define Indifference curve

Indifference curves are graphical representations used in economics to illustrate and analyze the preferences of consumers. These curves depict various combinations of two goods or services that provide the same level of satisfaction or utility to a consumer, effectively showing that the consumer is indifferent or equally happy with any point on the curve.

Step by step

Solved in 6 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions