interest rate is 10%. The Permanent Income Hypothesis posits Henry will choose point (Select] If he moves along the budget line from A to B, Henry is (Select] If moves from C to B, Henry is [Select] efure Market (Good A) Henry 150.000 Income/Coniumtion Today
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- Utility functions of a consumer: U = 20x10.4x20.4 Specify:a. marginal utility of each item.b. If the consumption of x1seee is 80 and x2 as much as 60 units, the price of Px120 and Px2 25, Determine if there is a balance of consumption?Consumer Choice Figure 21-15 On the graph, Qx represents the quantity of good x and Qy represents the quantity of good y. The lines drawn on the graph represent three of Barbara's indifference curves. O Qy Ove Icon Key 0 A D Q₂ Refer to Figure 21-15. For Barbara, the marginal rate of substitution between goods y and x a. increases as she moves downward and to the right along one of her indifference curves. b. decreases as she moves downward and to the right along one of her indifference curves. c. remains constant as she moves downward and to the right along one of her indifference curves. d. is undefined for any movement along any one of her indifference curves. BRich's Opportunities. Rich has no nonlabor income, and suppose the price of consumption is $1 per unit. Rich earns $15 per hour, and he has 16 hours in the day to allocate between working and leisure time. The figure be depicts his budget line. consumption (units/day) 240 210 180 150 120 90 60 30 0. 21 4. 6. 8. 10 12 14 16 leisure (hours/day) Rich is thrilled to learn that his folks will give him a $10 daily allowance starting tomorrow. What happens to Rich's opportunities tomorrow? O a. Rich's endowment point shifts left $10. Ob. His budget line shifts up 10 units of consumption per day. O c. The slope of Rich's budget line increases (in absolute value) $10 per day. O d. The slope of Rich's budget line decreases (in absolute value) $10 per hour.
- 25 Columns 1 through 4 in the following table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are, respectively, $9, $3, $2, and $6 and that Ricardo has an income of $71. Column 1 Column 2 Column 3 Column 4 Column 5 Units of Good A Units of Units of Units of MU MU MU MU Good B Good C Good D Number of Dollars Saved MU 1 72 1 24 1 15 1 36 1 5 2 54 2 15 2 12 2 30 2 4 3 45 3 12 3 8 3 24 3 3 4 36 4 9 4 7 4 18 4 2 5 27 5 7 5 5 5 13 5 1 6 18 6 5 6 4 6 7 6 0.50 7 15 7 2 7 3.5 7 4 7 0.25 8 12 8 1 8 3 8 2 8 0.13 Instructions: Enter your answers as a whole number. a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? 4 units of A 3 units of B units of C units of D b. How many dollars will Ricardo choose to save?CHAPTER 6 Household Behavior and Consumer Choice 127 E 8. Decide whether you agree or disagree with each of the following statements and explain your reason: a. If the income effect of a wage change dominates the substitu- tion effect for a given household and the household works longer hours following a wage change, wages must have risen. b. In product markets, when a price falls, the substitution effect leads to more consumption; but for normal goods, the income effect leads to less consumption. 9. Suppose the price of X is $5 and the price of Y is $10 and a hypo- thetical household has $500 to spend per month on goods X and Y. a. Sketch the household budget constraint. b. Assume that the household splits its income equally between X and Y. Show where the household ends up on the budget constraint. c. Suppose the household income doubles to $1,000. Sketch the new budget constraint facing the household. d. Suppose after the change the household spends $200 on Y and $800 on X. Does…Kevin has a wage income of $10,000 in the present and $15,000 in the future. His utility is given as U = min (4cp, 5cf), where cp denotes consumption today and cf consumption in the future. The relevant interest rate is 10%. a. If the interest rate were to increase to 15 percent,would Kevin be better off or worse off? Explain. b. Find two measures to indicate how much better off or worse off Kevin is as a result of the increase in interest rates. Explain.
- Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…2nd attempt See Hint A consumer faces a tradeoff between labor (L) and leisure (R). She consumes a composite good (C). When the consumer works, she earns an hourly wage of $15.00, and she spends a maximum of 24 hours on labor and leisure, but she chooses to work 10.00 hours. Whatever time she does not spend working, she spends on leisure. She starts with an initial endowment of 11.00 units of the composite good, which she can buy and sell freely at a market price of $4.00. Given this information, what is the consumer's real wage? $ 1941. Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. a. Draw the budget line. b. Draw an indifference curve consistent with a person whose preferences causes them to equalize their consumption in period 0 and period 1. c. Savings are $_ d. Draw the after-tax budget line if a personal income tax is introduced with a marginal tax rate of t= 40%. e. Suppose that preferences are such that after tax consumption is equalized in period 0 and period 1. On the diagram show after-tax savings. Сі ($x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Со ($ x 1,000)
- Consider the following graph, which shows the relationship between an individual's income and the number of times he or she eats out each month. QUANTITY (Dinners out per month) 20 10 16 14 12 O 7 INCOME (Thousands of dollars per month) 10 Brian ? Hint: When answering the following, be sure to specify the appropriate units. The blue point already shown on the graph shows the data for Crystal. According to the graph, Crystal's income is has Suppose Crystal's friend Brian has an income of $2,000 per month and has 4 dinners out per month. $8,000 $8,000 per month $16 per month $16 and she24. Given this diagram, what is the simple income multipier? a) 1/2 b) 2 c) 10 d) 70 e) 80 f) 1007. Suppose that you can earn $16 per hour before taxes and can work up to 80 hours per week. Consider two income tax rates, 10% and 20%. a. On the same diagram, draw the two weekly consumption-leisure budget constraints reflecting the two different tax rates. b. Draw a set of representative indifference curves such that the income effect of the tax increase outweighs the substitution effect. c. Draw a set of representative indifference curves such that the substitution effect of the tax increase outweighs the income effect.