Practice sheet: The optimal choice Find the optimal choice for each of the following individuals given that each has an income of $210 that they can spend on coffee (good x) and bagels (good y). The prices of each are Px=$2 and Py=$1. Use a graph to illustrate each case a) Adam's utility is U= 3x+2y. How will his consumption point change if Py=$2 b) Joshua's utility is U=min (3x,2y). What is his utility when he consumes the optimal choice? c) Rachel's utility is U=24√x + 3y and Mux-and MUy=3. How does her optimal consumption change when her income increases to 490? Do you notice anything? d) Charlie's utility is U=x0.75 0.25, MUX-0.75 -0.25 0.25 and MUy= 0.25 x0.75y-0.75. Charlie has what we call homothetic preferences. What does that mean? What can you say about his budget shares of each good?

Practice sheet: The optimal choice Find the optimal choice for each of the following individuals given that each has an income of $210 that they can spend on coffee (good x) and bagels (good y). The prices of each are Px=$2 and Py=$1. Use a graph to illustrate each case a) Adam's utility is U= 3x+2y. How will his consumption point change if Py=$2 b) Joshua's utility is U=min (3x,2y). What is his utility when he consumes the optimal choice? c) Rachel's utility is U=24√x + 3y and Mux-and MUy=3. How does her optimal consumption change when her income increases to 490? Do you notice anything? d) Charlie's utility is U=x0.75 0.25, MUX-0.75 -0.25 0.25 and MUy= 0.25 x0.75y-0.75. Charlie has what we call homothetic preferences. What does that mean? What can you say about his budget shares of each good?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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