Eliza is a seven year old who loves chocolate and is neutral about any other food (ie. she gains no utility from consuming anyther other than chocolate). Suppose chocolate costs $1 and Eliza’s mother gives her $5 to spend on any food she wants at the grocery store. Let chocolate be good 1, and good 2 be a ‘numeraire good’ of $1 spent on any other good. Show using indifference mapping how much chocolate Eliza will consume.

Eliza is a seven year old who loves chocolate and is neutral about any other food (ie. she gains no utility from consuming anyther other than chocolate). Suppose chocolate costs $1 and Eliza’s mother gives her $5 to spend on any food she wants at the grocery store. Let chocolate be good 1, and good 2 be a ‘numeraire good’ of $1 spent on any other good. Show using indifference mapping how much chocolate Eliza will consume.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $6 and each order of fries costs $3. When deciding how much of each good to buy, Rick knows that 2 burgers and 4 orders of french fries will give him a utility of 8. At his utility-maximizing point, Rick's utility is:
The budget set, or budget constraint, in the graph shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of $18 to spend on brownies and ice cream cones. How much does a brownie cost? $ Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person is utility maximizing. should consume more brownies and fewer ice cream cones. should consume more ice cream cones and fewer brownies. Brownies 18- 16- 14- 12- 10- 8- 6- 4 2. 0 1 2 3 1 A 1 + 4 5 Budget constraint 6 7 8 9 10 11 12 13 14 Ice cream cones
The budget set, or budget constraint, in the graph shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of $18 to spend on brownies and ice cream cones. How much does a brownie cost? $ Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person should consume more brownies and fewer ice cream cones. is utility maximizing. should consume more ice cream cones and fewer brownies.
Explain why it is that as the consumer purchases more of a good, her marginal utility falls while her total utility rises.
Question 3 Lucy consumes only scoops of ice-cream (x) and cones (y). Moreover, she insists on consuming these two goods in the combination of 1 scoop of ice-cream and 1 cone. If there are more scoops of ice-cream than cones, she throws the extra ice-cream away. If there are more cones than scoops of ice-cream, she throws the extra cones away. Her utility function for ice-cream and cones is given by U(x, y) = min {x,y}. (The function min {x,y} returns the smaller number between x and y. In other words, if x y, min {x,y} = y; and if x = y, min {x,y} = x = y.) (a) Draw a couple of indifference curves for Lucy. Put ice-cream on the horizontal axis. (Hint: Draw the 45° line. Choose a point on the line. If you increase the amount of x but not y from that point, how would Lucy's utility change? If you increase the amount of y but not x from that point, how would Lucy's utility change?) (b) Suppose each scoop of ice-cream costs $2, and each cone costs $1. Lucy has an income of $6. Draw her…
Peter consumes only chocolate ice cream and vanilla ice cream. He is spending all of his income. His marginal utility of chocolate is 200 and his marginal utility of vanilla is 200, and the price of chocolate is $1.00 per scoop and the price of vanilla is $2.00 per scoop. To maximize his utility, Peter should
8. Normal and inferior goods Shen likes going to the ballpark to watch baseball, and he also is fond of going to the theater to listen to the symphony orchestra. The following diagram shows two of Shen's Indifference curves for going to ballgames and symphonies. With Shen's initial budget constraint (BC₁), he chose to go to five symphonies and three baseball games per month (point X). Then his budget constraint shifted to BC₂, and he chose to go to four symphonies and six ballgames per month (point Y). BALLGAMES 0 0 5 SYMPHONIES BC 8 goods. BC 10 ? of the following choices, which could have shifted Shen's budget constraint from BC, to BC₂? Check all that apply. The price of baseball tickets Increased while his income and the price of symphony tickets stayed the same. The prices of both baseball and symphony tickets decreased while his income stayed the same. His Income increased while the prices of baseball and symphony tickets stayed the same. His Income decreased while the prices of…
While discussing the choice bundle of a consumer, differentiate between Boundary Optimum and Interior Optimum. Show and explain in which cases a consumer faces these types of optimal equilibria?
Suppose Tom has $60 in income and only buys cheese and tuna. Walmart charges $2 for a can of tuna and $4 for a block of cheese. Tom shops at Walmart and buys 20 cans of tuna and 5 blocks of cheese. a) Draw the budget constraint and indifference for Tom (put Tuna on X-axis). b) Suppose Tom’s income increases to $100, and his consumption of cheese increases to 6 blocks. Draw the new budget constraint and new optimal consumption bundle. c) Is tuna a normal or inferior good for Tom? Draw the Engel curve of tuna.
What would be the MRS on his in difference curve between one and two containers of rice pudding?
Suppose Jeff has a perfect substitute preferences for watching movies (M) and TV (T) shows. Jeff's MRSTM is such that he is always indifferent between watching one movie and five TV shows independent of the amount of goods consumed. Which of the following statements is true? If Jeff had a choice between 1 movie and 1 TV show before bed, he would choose to watch the movie. If Jeff has already watched 3 movies and no TV shows, then he would prefer to watch a TV show next. He is indifferent between watching 1 TV show or 1 movie before bed. Jeff would prefer watching 2 TV shows and no movies over watching 2 Movies and no TV shows.
Becky needs to decide how many cups of coffee and pieces of cake she will buy for a meeting with an office mate. She estimates her total utility for different quantities of coffee and cakes below. A cup of coffee is $1.00, and each piece of cake is $0.50. Becky has a total of $3 to spend. What is Becky's total utility if she buys 1 cup of coffee and 4 pieces of cake? Cups of Coffee 1 2 3 4 5 6 Utility from Consumption Pieces of Cake 1 2 3 4 5 6 A B C D Total Utility from Cups of Coffee 33 56 79 Total Utility from Pieces of Cake 15 32 48 63 77 90 Total Utility of Different Consumption Bundles Consumption Bundle Cups of Coffee Pieces of Cake Total Utility 3 0 2 2 1 4 0 6