Answered: ) Explain by using an example why an…

) Explain by using an example why an MRS (Marginal Rate of Substitution) between two goods must equal the ratio of the price of the goods for the consumer to achieve maximum satisfaction?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 1SQP

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Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this finding?
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If a good is a Normal Good and its price decreases, what are the directions of the Substitution Effect and the Income Effect? Both are increases Both are decreases The Substitution Effect is an increase while the Income Effect is a decrease The Substitution Effect is a decrease while the Income Effect is an increase
What is the law of diminishing marginal utility for consumers, what is the learning curve of a producer? It seems that as the producer becomes more efficient at producing their product; the consumer tends to have less and less satisfaction from consuming one additional unit of the producer's product. Is this true (think in terms of only one producer and consumer)? Explain your answer.
Can you explain why taking a monotonic transformation of a utility function doesn’t change the marginal rate of substitution?
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Suppose we have the following utility function: U(x,y)=x^O.33 y^0.67 1) What is the Marginal utility of x? Marginal utility of y? 2) Comment on how the marginal utility of each changes as x increases and discuss why that makes sense. 3) Does this utility function follow the more is better rule? How do you know? 4) What is the marginal rate of substitution (MRS)? What do we know about the shape of the indifference curve given this MRS? 5) Now suppose we have a new utility function: U(x,y)=x+y. What type of goods are these? Explain.
Sally eats at the local burger restaurant. Suddenly the restaurant lowers its prices.A - In response to the low prices of burgers, Sally reduced her visit to the pizzeria. Can we know from this whether pizza was a bad product for Sally or not?B - Suppose instead that, in response to the drop in burger prices, Sally goes to the burger restaurant a lotExplain how this might happen in terms of income and substitution effects (using the concepts of normal and inferior goods)?
(1) Discuss the difference(s) between marginal rate of substitution and marginal rate of technical substitution. (2) Make a one-page note on the term monotonic preferences. (3) Suppose there are two consumers in the market for a good and their demand functions are as follows: di (p) = 20 – p for any price less than or equal to 20 , and d, (p) = 0 at any price greater than 20. dz(p) = 30 – 2p for any price less than or equal to 15 and di (p) = 0 at any price greater than 15. Find out the market demand function. (4) Suppose the price elasticity of demand for a good is -0.2. If there is a 5% increase in the price of the good, by what percentage will the demand for the good go down?
Harry consumes 2 goods, X and Y and he spends N$60 per month. The price of good X is N$4 and the price of good Y is N$10. Harry's utility function is U(X, Y) = XY. (i) What is Harry's marginal rate of substitution? (5) (ii) What is the expression for Harry's budget constraint? (3) (iii) What is the slope of Harry's budget constraint? (2) (iv)Find the values of good X and Y maximizes Harry's utility. Show all your work. (6) (v) Illustrate Harry's utility maximizing combination on a clearly labelled graph. (4) (vi) Suppose the price of good X increased to N$6. Illustrate Harry's income and substitution effects on a well labelled graph. Show your work. (10) (vii) Suppose Genie is consuming two goods, coffee and beer. She spends all her income on a combination of coffee and beer where MUcoffee/Peoffee is 5 and MUbeer/Pbeer is 3. Explain why this combination is not maximizing her satisfaction. What should she do to maximize her utility? (5)
Consider the increase in the price of a can of soda and assume that soda is a normal good. Describe how the income and substitution effects impact on the demand for the cola if its price increases. Also describe how these two effects interact for inferior goods if there is a fall in the price of the good. Use bullet points