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Lionel eats ham (x) and cheese (y). The utility function U(x, y) = 0.25x + 2y0.5 represents his preferences. a) What is Lionel's MRS? Holding y constant, how does his MRS change as ham (x) is increased? b) What does your answer in (a) imply about his indifference curves as you hold y constant and increase x? In (c) and (d) you are asked about the Marshallian and Hicksian Demands for cheese (y). Do NOT calculate the demand functions to answer these questions. Use your answers to (a) and (b) to explain your answer. c) Holding prices constant, what is the effect of an increase in income on his Marshallian demand for cheese (y)? Briefly explain your answer. d) Holding prices constant, what is the effect of an increase in utility on his Hicksian demand for cheese (y)? Briefly explain your answer His Marshallian Demand function for ham is x*. = I Px ду* əh* aPx aPx 16Px Py X* and for cheese is y* If Px = 2, Py =2 and I = 120, the best bundle (A) for ham and cheese is (44, 16) If Px = 3, Py = 2 and I = 120, the best bundle (B) for ham and cheese is (16, 36) e) The price of ham rose from 2 to 3. In your diagram illustrate the substitution and income effects associated with the price decrease. = The Slutsky equation expresses a relationship between the derivatives of the Marshallian and Hicksian demands. Specifically, in the case of the cross price derivative ду* al (4) ² 4Px Py f) Given the income effect for cheese (y) then what does the Slutsky equation imply about the cross price derivatives of the Marshallian and Hicksian demands for cheese?

Lionel eats ham (x) and cheese (y). The utility function U(x, y) = 0.25x + 2y0.5 represents his preferences. a) What is Lionel's MRS? Holding y constant, how does his MRS change as ham (x) is increased? b) What does your answer in (a) imply about his indifference curves as you hold y constant and increase x? In (c) and (d) you are asked about the Marshallian and Hicksian Demands for cheese (y). Do NOT calculate the demand functions to answer these questions. Use your answers to (a) and (b) to explain your answer. c) Holding prices constant, what is the effect of an increase in income on his Marshallian demand for cheese (y)? Briefly explain your answer. d) Holding prices constant, what is the effect of an increase in utility on his Hicksian demand for cheese (y)? Briefly explain your answer His Marshallian Demand function for ham is x*. = I Px ду* əh* aPx aPx 16Px Py X* and for cheese is y* If Px = 2, Py =2 and I = 120, the best bundle (A) for ham and cheese is (44, 16) If Px = 3, Py = 2 and I = 120, the best bundle (B) for ham and cheese is (16, 36) e) The price of ham rose from 2 to 3. In your diagram illustrate the substitution and income effects associated with the price decrease. = The Slutsky equation expresses a relationship between the derivatives of the Marshallian and Hicksian demands. Specifically, in the case of the cross price derivative ду* al (4) ² 4Px Py f) Given the income effect for cheese (y) then what does the Slutsky equation imply about the cross price derivatives of the Marshallian and Hicksian demands for cheese?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Thank you for answering Q(a) to (c) already. Now I re-post the question, please answer part d to part f.

Thank you.

Lionel eats ham (x) and cheese (y). The utility function U(x, y) = 0.25x + 2y05 represents his preferences. a) What is Lionel's MRS? Holding y constant, how does his MRS change as ham (x) is increased? b) What does your answer in (a) imply about his indifference curves as you hold y constant and increase x? In (c) and (d) you are asked about the Marshallian and Hicksian Demands for cheese (y). Do NOT calculate the demand functions to answer these questions. Use your answers to (a) and (b) to explain your answer. c) Holding prices constant, what is the effect of an increase in income on his Marshallian demand for cheese (y)? Briefly explain your answer. d) Holding prices constant, what is the effect of an increase in utility on his Hicksian demand for cheese (y)? Briefly explain your answer (*) 16P APx His Marshallian Demand function for ham is x and for cheese is y- Py Px Py If P. = 2, P, = 2 and I= 120, the best bundle (A) for ham and cheese is (44, 16) If P, = 3, P,= 2 and I= 120, the best bundle (B) for ham and cheese is (16, 36) e) The price of ham rose from 2 to 3. In your diagram illustrate the substitution and income effects associated with the price decrease. The Slutsky equation expresses a relationship between the derivatives of the Marshallian and Hicksian demands. Specifically, in the case of the cross price derivative ay ah OP f) Given the income effect for cheese (y) then what does the Slutsky equation imply about the cross price derivatives of the Marshallian and Hicksian demands for cheese?
Transcribed Image Text:Lionel eats ham (x) and cheese (y). The utility function U(x, y) = 0.25x + 2y05 represents his preferences. a) What is Lionel's MRS? Holding y constant, how does his MRS change as ham (x) is increased? b) What does your answer in (a) imply about his indifference curves as you hold y constant and increase x? In (c) and (d) you are asked about the Marshallian and Hicksian Demands for cheese (y). Do NOT calculate the demand functions to answer these questions. Use your answers to (a) and (b) to explain your answer. c) Holding prices constant, what is the effect of an increase in income on his Marshallian demand for cheese (y)? Briefly explain your answer. d) Holding prices constant, what is the effect of an increase in utility on his Hicksian demand for cheese (y)? Briefly explain your answer (*) 16P APx His Marshallian Demand function for ham is x and for cheese is y- Py Px Py If P. = 2, P, = 2 and I= 120, the best bundle (A) for ham and cheese is (44, 16) If P, = 3, P,= 2 and I= 120, the best bundle (B) for ham and cheese is (16, 36) e) The price of ham rose from 2 to 3. In your diagram illustrate the substitution and income effects associated with the price decrease. The Slutsky equation expresses a relationship between the derivatives of the Marshallian and Hicksian demands. Specifically, in the case of the cross price derivative ay ah OP f) Given the income effect for cheese (y) then what does the Slutsky equation imply about the cross price derivatives of the Marshallian and Hicksian demands for cheese?
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