Pizza Indifference Curve 2 Indifference Curve 1 Coffee Refer to the Figure. Which of the following statements is correct? O Bundle D provides the same utility as bundle A. Bundle D is preferred to all other points identified in the figure. O If the consumer moves from bundle C to bundle A, her loss of coffee cannot be compensated for by an increase in pizza. Bundle A provides the same utility as bundle C.

Pizza Indifference Curve 2 Indifference Curve 1 Coffee Refer to the Figure. Which of the following statements is correct? O Bundle D provides the same utility as bundle A. Bundle D is preferred to all other points identified in the figure. O If the consumer moves from bundle C to bundle A, her loss of coffee cannot be compensated for by an increase in pizza. Bundle A provides the same utility as bundle C.

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 22 A consumer chooses an optimal consumption point where the O marginal rate of substitution is maximized O slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount O ratio of the marginal utilities equals the ratio of the prices O All of the above are correct
Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should his consumption of crackers and his marginal utility from crackers will and also his consumption of cheese and his marginal utility from cheese will (Assume he is in the downward sloping portion of the MU curve.) Ο Ο Ο decrease; increase; increase; decrease increase; increase; increase; increase increase; decrease; increase; decrease increase; increase; decrease; decrease
Emily is a utility maximizer. Her income is $100, which she can spend on cafeteria meals and on notepads. Each meal costs $5 and each notepad costs $2. At these prices Emily chooses to buy 16 cafeteria meals and 10 notepads. a) Draw a diagram that shows Emily’s choice using an indifference curve and her budget line, placing notepads on the vertical axis and cafeteria meals on the horizontal axis. Label the indifference curve, I1, and the budget line BL1. Make sure you calculate the endpoints of the budget constraint. b) The price of notepads falls to $1; the price of cafeteria meals remains the same. On the same diagram, draw Emily’s budget line with the new prices and label it BL2. c) Lastly, Emily’s income falls to $90. On the same diagram, draw his budget line with this income and the new prices and label it BL3. Is she worse off, better off, or equally as well off with these new prices and lower income than compared to the original prices and higher income?
The table below represents Sue’s preferences for bottled water and soft drinks, the combination of which yields the same level of utility. Combination of Bottled Water and Soft Drinks Bottled Water per Month Soft Drinks per Month A 5 11 B 10 7 C 15 4 D 20 2 E 25 1 Calculate Sue’s marginal rate of substitution of soft drinks for bottled water at each rate of consumption of water (or soft drinks). Relate the marginal rate of substitution to marginal utility.
4. John has a utility for the quantity of sandwiches, Xs, and quantity of burgers, Xp, that he consumes, represented by the following equation: U(X,X) = XX His income is Y = $24. The price of a sandwich changes from X, = $1 to X, = $4 while the price of a burger remains at X, = $6. Solve for the compensating variation and equivalent variation associated with this price increase.
lucys utility functions is U (s, l) = min{s2+2L2, 2s2+L2}, where s is her consumption of sandwiches and l is her consumptionof cups of lemonade.a. Draw Susan’s indifference curve along which her utility is 300b. How many sandwiches and cups of lemonade Susan will consume if shehas $20 and price of a sandwich and a cup of lemonade are $2 and $4,respectively.
10. Assume an individual's preferences are represented by the following indifference map and he has an income of S400. Which of the following is shown when the price of Good I is $20 and the price of Good 2 increases from $10 to S16? Note: Even though the price of Good 2 is increasing, the steps to determine the income and substitution effects are the same. 50 45 40 35 30 25 20 15 10 10 15 20 25 30 35 40 45 50 Good 1 Good 2 is a normal good. Good 2 is an inferior good, but not a Giffen good. Good 2 does not satisfy the Law of Demand. • Ignoring the Income Effect, the Substitution Effect will cause the individual to consume more of Good I. A. B. 21 C. 3 None of the above statements are true. D. Good 2
The figure below shows two of Josie's indifference curves between peaches and cream, as well as her budget constraint (the straight line). Josie, with an income of $32, faces prices of $4 for both peaches and cream. She is currently maximizing utility by consuming 4 peaches and 4 creams. Highlight Josie's current bundle. Then, show what happens to her utility maximizing bundle when Josie's income falls to $20 by drawing a new budget constraint and placing a point Josie's new bundle. Segment • Point * Undo * Redo x Reset 10 8 5. 4 3 2 1 10 Peaches
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4. Use the following information to calculate Wren's optimal bundle and his resulting utility: IC:U(x,y) = x0.5, 0.5 Px = 1, Py = 4, m = 48
2 Indifference curves Suppose an individual who derives utility u(x, y) from consuming a units of good X and y units of good Y. Derive the indifference curve for a level of utility U for each of the following utility functions. Draw them in the graph below for a utility level U = 18. (A) u(x, y) = 2x + 3y (B) u(x, y) = min{3x, y} (C) u(x, y) = xy
8. Fabian consumes X and Y and the following utility function represents his utility: U = 2XY a. With a utility function of U = 2XY, Fabian's MU, = 2Y and his MU, = 2x ,where MU is marginal utility. Write an equation for Fabian's marginal rate of substitution (MRS). b. Suppose Fabian's income is $120 and Px = S6 and Py-$2, where Px is the price of X and Py is the price of Y. Write an equation for Fabian's budget constraint. c. Write the equation that equates the slope of Fabian's budget constraint to the slope of Fabian's indifference curve: d. If Fabian is spending all of his income, how much X and how much Y will he choose? Use the equations you wrote in part's b and c to answer this question. e. What will Fabian's utility be with this combination of X and Y? f. Now suppose the price of X increases to P.=10. Write the equation that equates the slope of Fabian's budget constraint to the slope of Fabian's indifference curve. How will this change the optimal combination of X and Y? What…