Problem 5. Consider the utility function U = In(M) + In(S) where M is the level of medicalcare, and S is spending on all other goods. This implies MgUM = M1 and MgUS = S1.Suppose medical care is priced at $120 per unit of medical care, income is $30,000, and let Ps= 1.1. Write the budget constraint. [5]2. Sketch the budget constraint where the quantity ofM is on the horizontal axis. [5]3. Sketch the optimality condition. How is this optimalcomputed? [5]4. Suppose price of medical care decreases by $20 per unit of medical care,sketch the new budget constraint on the same graph as Problem 5.2. [5]

3.The optimality condition is given by the equation MgUM/MgUS = Pm/Ps. Substituting the given…

Answered: Problem 5. Consider the utility…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that consumers spend their income on either health insurance or on a“composite good”. Find the optimal bundle of health insurance (HI) and other goods (G) given the following budget constraint and utility function. How much utility does this bundle give the individual? Put HI on the x axis of any graphs. Budget constraint: 1600 = 160*HI + 20*GUtility function: U=HI*G where MRS = -G/HI
MN.42.
The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on: a. neither can be compared by measuring marginal utility. b. mental health therapy due to its higher marginal return rate. c. elective surgery due to its lower marginal return rate. d. both programs, which have the same marginal return rate.
A person has $50/week for transport expenditures for their job. Uber ride = $10. Subway ride =$2.50. If Uber rides are on the x-axis, what is the slope of the budget constraint? If the marginal utility of a person’s last Uber ride was 30 and the marginal utility of a person’s last subway ride was 5, then how should the person adjust the consumption bundle to maximize utility? A -Increase the number of Uber rides and decrease the number of subway rides B -Decrease the number of Uber rides and increase the number of subway rides C -Remain the same – the consumption bundle is already utility- maximizing D -Change ambiguously – there is not enough information to answer
Urgent
Given: Budget constraint: 1600 = 160*HI + 20*GUtility function: U=HI*G where MRS = -G/HI Consider someone who has an optimal bundle of health insurance (Hi) of 5 and other goods (G) of 40 (Hi = 5, G = 40). Assume that this individual prefers to optimally purchase no health insurance (Hi). On a graph, draw the budget constraint offered above and include the indifference curve for a person who optimally chooses to be uninsured.
1) A rational consumer has a utility function that follows all of the characteristics explained in class and can choose to buy either “medical care” or sushi. S/he is constrained by a weekly budget 400. Medical care costs $20 per unit and sushi $6. Graphically and verbally detail the following using proper terms, labels, and vocabulary. Utility Function=6x^1/3y^2/3a. Draw this consumer’s utility function and budget constraint. Indicate the optimal bundle & briefly explain why.b. Consumer’s income decreases to $280 per week.c. A moderate increase in the price of medical care of $5.Does the optimal ratio change from the effects of part c & why.
See the attachment. How do you find the maximum whole-dollar amount the individual would spend to insure against the loss of money?
1. A consumer decides not to buy a VCR when her income is $20,000. However, when her income rises to $30,000, she decides to buy one. In a single diagram, draw the budget lines and indifference curves to illustrate this situation (assume the VCR costs $300 in both time periods). Be sure to label your diagram completely. 2. An individual consumes products X and Y and spends $25 per time period. The prices of the two goods are $3 per unit for X and $2 per unit for Y. The consumer in this case has a utility function expressed as: U(X,Y) = 0.5XY MUX = 0.5Y MUY = 0.5X. a. Express the budget equation mathematically. b. Determine the values of X and Y that will maximize utility in the consumption of X and Y. c. Determine the total utility that will be generated per unit of time for this individual.
12
Sam's extended family spends $3,200 per month on wine and beer. Their utility function is given by U = 200WB, where W represents the number of bottles of wine that they buy, and B represents the number of cases of beer that they buy. Wine costs $25 per bottle and beer costs $32 per case. Sam's family wants to maximize their utility. Calculate how many bottles of wine and how many cases of beer they should buy. Show your calculation(s).
John currently lives in Sydney where he earns $2700 a week as a high school principal. If he moves to Batemans Bay, he has to accept a position as a classroom teacher where he will earn $2100 a week. John only considers two goods, cost of living (c) and health (h). In Sydney, pe = 54 and ph = 90. In Batemans 1 1 Bay, Ph = 36. John's utility function is u(c, h) = h + cihi. a) What is John's optimal consumption of h in Sydney? b) What would be John's optimal consumption of c in Batemans Bay? c) What is the maximum cost of living ph such that John will accept to move to Batemans Bay?

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