Questions1. Will's utility from vacations (91) and meals (92) is given by the function U(V, M) = 91 x 92. Last year,the price of vacations was $200 and the price of meals was $50. This year, the price of meals rose to$75, while the price of vacations remained the same. Both years, Will had an income of $1500.(a) What is the compensating variation for the price change in meals?(b) What is the equivalent variation for the price change in meals?

Answered: Questions 1. Will's utility from…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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11. Let u(x₁, x₂) = x₁02x₂0.8. Suppose the consumer initially has income level m = 20 and the prices are p₁ = 4 and p2 = 1. Calculate the income and substitution effect when the price of Good 1 decreases to p₁ = 2. Based on your calculation, was the substitution or income effect larger for Good 2?
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Greg has the following utility function: u = x0.30x0.70. He has an income of $89.00, and he faces these prices: (P₁, P2) = (5.00, 2.00). Suppose that the price of x₁ increases by $1.00. Calculate the equivalent variation for this price change. *$94
Find the expenditure function corresponding to utility function u(x₁,x₂) = ln(x₁ +a)+ln(x₂+b). a.e(p₁u) = 2√P₁P₂)eu/2 b.e(p,u)=e¹(√P₁P₂)+ap₁ + bp₂ Ⓒc. e(p₁u) = 2(√P₁P₂)eu/2-ap₁-bp₂ d.elpu)=e"√√P₁P₂
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3.7 (0) Joan likes chocolate cake and ice cream, but after 10 slices of cake, she gets tired of cake, and eating more cake makes her less happy. Joan always prefers more ice cream to less. Joan's parents require her to eat everything put on her plate. In the axes below, use blue ink to draw a set of indifference curves that depict her preferences between plates with different amounts of cake and ice cream. Be sure to label the axes. (a) Suppose that Joan's preferences are as before, but that her parents allow her to leave anything on her plate that she doesn't want. On the graph below, use red ink to draw some indifference curves depicting her preferences between plates with different amounts of cake and ice cream.
A consumer has a budget of $3000 in a given period, and wishes to buy two goods, X and Y, so as to maximise his utility. The price of good X is $5 and the price of good Y is $2, and his MRS is given by the formula 2Y/X. How many units of good X will he buy in that period?
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EXERCISE 5 Loise spends £20 on tea (T) and coffee (C). Her preferences for these goods can be described by the following utility function: ( , ). Suppose that one cup of tea costs £1.60 while one cup of Loise’s favourite coffee costs £4.00. Find Loise’s optimal consumption bundle. Provide both algebraic and graphical solution. Explain your reasoning. Discuss how Loise’s optimal consumption choice would change when her disposable budget changes. If the price of tea increases to £2.00 per cup, how should the price of coffee change so that Loise can be as well off as before this change in prices? Discuss the implications of the price change from c) on Loise’s optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Loise’s demand for tea and/or coffee.
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Suppose Jeff has a perfect substitute preferences for watching movies (M) and TV (T) shows. Jeff's MRSTM is such that he is always indifferent between watching one movie and five TV shows independent of the amount of goods consumed. Which of the following statements is true? If Jeff had a choice between 1 movie and 1 TV show before bed, he would choose to watch the movie. If Jeff has already watched 3 movies and no TV shows, then he would prefer to watch a TV show next. He is indifferent between watching 1 TV show or 1 movie before bed. Jeff would prefer watching 2 TV shows and no movies over watching 2 Movies and no TV shows.

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