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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5. Assume that a consumer has two goods to consume: medical care services (M) and all other goods (X). She has monthly income of $4500. A. Assume that the price of medical care services is $500 per unit and price of other goods is $100 per unit. Plot the budget constraint of this consumer. Remember to label the origin, axis, and intercepts on your graph. B. Plot how the budget constraint would change when the price of other goods increases to $150 per unit. How did the relative price change? Briefly explain. C. Did the consumer better off or worse off after the change in price? Please explain. (Hint: you can use concepts of income effects and substitution effects to answer this question). D. From your own experience, how did your budget constraints most recently change? Was it due to the COVID pandemic?
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.
1. Suppose someone's budget is $780, and it is fully spent on buying Product A. The price of this product is $26. Calculate the price change of Product A if there is a 1.3 times increase in the quantity available to purchase. Enter your answer in the box below, use a minus sign to show a decrease in price, and round to the nearest whole number if necessary. 2. Consider the spending choices of the following consumer: Emily's income is spent on colas and orange sodas, as well as other goods. She considers colas to be a normal good and orange sodas to be a normal good. What will happen to Emily's purchases of these goods if her income decreases? Select the best answer. She will buy more colas and fewer orange sodas.She will buy fewer colas and fewer orange sodas.She will buy more colas and more orange sodas.She will buy fewer colas and more orange sodas. Is the following statement true or false? Select the best answer. The price ratio of coffee to cookies is 1.5, so the marginal utility…
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
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.
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.
Over the past decade, medical costs have increased more rapidly than other prices. In order to illustrate how rising medical costs have affected consumer alternatives, let X represent the quantity of medical services, and let Y represent the quantity of other goods. Furthermore, let income (M) be measured in hundreds of RM, the price of medical services and other goods in terms of dollars per minute, with M = 100, Px = 4, and Py = 5. Graph the budget line, and determine the market rate of substitution. Illustrate the budget set. Show in your graph what happens to the budget constraint if Px increases to RM10. What is the meaning of the slope of the two budget constraints?
7. Suppose U = x₁x2 and the budget constraint is given as x₁ + 1 = B, solve for x and 1-α 8. Suppose U = xx and our budget is given as p₁x₁+P2x2 = m, where m is our income. Solve for solve for x and x₂. 9. Suppose now we want to minimize our expenditure while achieving a certain amount of utility. So say our budget is given as P₁x₁ + P2x2, which we want to minimize, while our utility x and x = u, where u is the level of utility we would like to achieve. Solve for x and x₂.
Question 5: Consider the analysis described in Figure 20.6. Tom and Dick each earn $25,000 per year. Tom has a spouse and two children, and Dick is unmarried. Health insurance and other goods trade off dollar for dollar (there is no tax advantage to health insurance). (a) Where would each of the two be located on the budget constraint, and why? (b) Which of the two would more likely take up a health insurance program, such as Medicaid? (c) How would your answers to the first two parts change if health insurance were subsidized (as it is) relative to all other goods?
Suppose you have a budget of $200 to spend on two goods, X and Y. Good X costs $10 and provides a utility of 500 - 2q, where q is the amount consumed. Good Y costs $5 and provides a utility of 500 - 3q. What combination of consumption of these two goods will maximize your overall utility? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
34) Suppose that left shoes and right shoes must be purchased separately. Ingrid needs an equal number of each type of shoe and has a budget of $100 for shoes. Left shoes always cost $1. If right shoes cost $19 each, how many of each will Ingrid buy? If the price of right shoes increases to $49 each, how will Ingrid react? Explain your answer by drawing the indifference curves-budget lines. 35) Johnny has $100 to spend on books and all other goods. Books cost $20 each and Johnny is at equilibrium consuming 3 books and $40 worth of other goods. Johnny's grandmom wants to give Johnny either a book or $20 for his birthday. Which gift does Johnny prefer? Explain using an indifference map and budget lines.

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