Jaime has preferences over GOOD (A) and GOOD (B), with $60 to spend on the two goods. The market price of GOOD A is currently $3. However, if she purchases a membership to Costco for $10, she can purchase GOOD B for $2. However, Costco does not sell GOOD B and can only be bought at a price of $1. 1. Write down the mathematical expression describing Jaime budget constraint for two separate cases. In the first, she does not buy the Costco membership, but in the second she does. Very carefully, graph both budget constraints on the same diagram with GOOD B on the horizontal axis and GOOD A on the vertical axis, again labeling all slopes and intercepts. A clear illustration will help you with the following subquestions. Assume for now that Jaime's preferences satisfy the standard consumer theory assumptions: they are monotonic, she has a diminishing marginal rate of substitution, etc so can you say for certain if Jaime will choose to buy the membership? Make reference to your graph from part (a) if needed. After performing some market research, we learn that Jaime's preferences can be described as Ug(Qa,Qb) = min{2Qa,Qb}. Assuming Jaime is a utility-maximizing consumer, will she purchase the costco membership?
3 part question, please answer completely:
Jaime has preferences over GOOD (A) and GOOD (B), with $60 to spend on the two goods. The market price of GOOD A is currently $3. However, if she purchases a membership to Costco for $10, she can purchase GOOD B for $2. However, Costco does not sell GOOD B and can only be bought at a price of $1.
1.
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Write down the mathematical expression describing Jaime budget constraint for two separate cases. In the first, she does not buy the Costco membership, but in the second she does. Very carefully, graph both budget constraints on the same diagram with GOOD B on the horizontal axis and GOOD A on the vertical axis, again labeling all slopes and intercepts. A clear illustration will help you with the following subquestions.
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Assume for now that Jaime's preferences satisfy the standard consumer theory assumptions: they are monotonic, she has a diminishing marginal rate of substitution, etc so can you say for certain if Jaime will choose to buy the membership? Make reference to your graph from part (a) if needed.
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After performing some
market research , we learn that Jaime's preferences can be described as Ug(Qa,Qb) = min{2Qa,Qb}. Assuming Jaime is a utility-maximizing consumer, will she purchase the costco membership?
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