1. Suppose there are only two goods in theworld, apples, and oranges. The price of anapple is Pa=2 and the price of an orange isPo=3. Assume there is an individual with thefollowing utility function u =2xa + 0.5xoThe income available for this individual is(=120 (marginal utility for apples is 4x a andmarginal utility for oranges is xo)a. Draw the budget line for this individual.Make sure to label the corner pointscorrectly (the points where the budgetline touches the x and y axes).b. What is the slope of the budget line?c. What is the slope of the indifferencecurve (MRS)?d. Write the intuition behind the MRS (interms of the substitutability of applesand oranges)

Marginal utility is the added satisfaction that a consumer gets from having one more unit of a good…

Answered: ne slope əpna əl c. What is the slope…

ne slope əpna əl c. What is the slope of the indifference b. IS curve (MRS)? d. Write the intuition behind the MRS (in terms of the substitutability of apples and oranges)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. Suppose there are only two goods in the
world, apples, and oranges. The price of an
apple is Pa=2 and the price of an orange is
Po=3. Assume there is an individual with the
following utility function u =
2xa + 0.5xo
The income available for this individual is
(=120 (marginal utility for apples is 4x a and
marginal utility for oranges is xo)
a. Draw the budget line for this individual.
Make sure to label the corner points
correctly (the points where the budget
line touches the x and y axes).
b. What is the slope of the budget line?
c. What is the slope of the indifference
curve (MRS)?
d. Write the intuition behind the MRS (in
terms of the substitutability of apples
and oranges)

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