Relate the concept of *marginal rate of substitution* back to the idea of *willingness to pay* and *economic return*. In particular...- If my $|MRS_{2 \text{ for } 1}| > |ERS_{2 \text{ for } 1}|$, can I receive additional economic return by reallocating my budget away from one commodity and towards another? If so, how? Why? Please include a diagram in your answer.

Answered: Relate the concept of marginal rate of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Pareto Efficiency Consider an economy with two people, Nancy and Roger, and two commodities, tea and biscuits. Currently, Nancy and Roger would both be willing to substitute two cups of tea for one biscuit. Further, if the economy were to produce one less cup of tea, the resources released from tea production could be used to produce three more biscuits. a. What is the value of the marginal rate of substitution and the marginal rate of transformation? b. Is the allocation in this economy Pareto efficient? Show graphically by drawing the indifference curve and the production possibilities schedule into the figure below. If not, should there be more tea or more biscuits? c. Explain why an economy in which airlines charge different passengers, different prices for the same flight is not Pareto efficient; when all passengers have the same preferences. d. Consider an economy which produces two goods, cars and shirts. Explain why if a tax is imposed on the consumption of cars but not on…
Define the following terms and give an example: (see attached image)
Consider Alexei who makes $1,400 per week and just won a ‘set for life’ lottery ticket which involves a fortnightly payment of $10,000 for 20 years. Currently he works 35 hours per week. Now do the following: • DRAW A DIAGRAM that shoes the effect of the lottery win on Alexei’s budget constraint using a fully labelled diagram where i) the horizontal axis represents the hours of free time per week, and ii) the vertical axis represents Alexei’s weekly consumption. (this is the only information provided)
The substitution effect of an increase in the wage rate will: O always lead to a decrease in the quantity of labor supplied. O always lead to an increase in the quantity of labor supplied. O lead to an increase in the quantity of labor supplied only if leisure is a normal good. O lead to an increase in the quantity of labor supplied only if leisure is not a normal good. O lead to an increase in the quantity of labor supplied only if the income effect works in the same direction.
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Consider Justin who makes $1,400 per week and just won a ‘set for life’ lottery ticket whichinvolves a fortnightly payment of $10,000 for 20 years. Currently he works 35 hours per week. Nowdo the following: • Illustrate the effect of the lottery win on Justins budget constraint using a fully labelleddiagram where i) the horizontal axis represents the hours of free time per week, and ii) thevertical axis represents Justins weekly consumption. • Illustrate on the same diagram Justins optimal decisions before and after the lottery winalong with his indifference curves. • Based on your diagram, discuss whether Justin will quit his job.
Larissa consumes at a point on her budget line where her marginal rate of substitution is less than the slope of her budget line (MRS_X,Y < PX/PY). As Larissa moves toward her optimum consumption bundle, her marginal rate of substitution MRS_X,Y will OA. fall. B. rise. OC. stay the same. OD. It is impossible to tell what Larissa's MRSX,Y will do without further information. Reset Selection
Fill in the marginal utility schedule for each of the goods. Assume that the price of food is $20, clothing $10, and housing $30. What is marginal utility per $ derived from consumption of the first unit of each of t1 three commodities? If Smith had only $20 to spend, which good(s) would he Assume that Smith's income is $130/week. If he purchased only the three commodities and faced the price structure in part b, how many units of each . would he demand per week?
If Porsha view 3 glasses of juice as a perfect substitute for one cup of soda and vice versa, what is her marginal rate of substitution between juice and soda?
Derive and plot Madeline's demand curve for Coke if she views Coke and Pepsi as perfect substitutes. (Hint: The quantity of Coke consumed where the budget line hits the Coke axis is Y/Pc, where pc is the price of Coke, pp is the price of Pepsi, and Y is income.) Use the 3-point curved line drawing tool to draw Madeline's demand curve for Coke. To simplify the analysis, assume that if the price of Coke and the price of Pepsi are equal, then Madeline, though indifferent between the two, only consumes Coke. Label this curve 'Demand'. Carefully follow the instructions above, and only draw the required objects. C Price/can of Coke Pp Y Pc Coke, Cans per year
just subparts g and h
Consider Laura who makes $1,400 per week and just won a ‘set for life’ lottery ticket which involves a fortnightly payment of $10,000 for 20 years. Currently she works 35 hours per week. Do the following: 1. Illustrate the effect of the lottery win on lauras budget constraint using a fully labelled diagram where i) the horizontal axis represents the hours of free time per week, and ii) the vertical axis represents lauras weekly consumption. 2. Illustrate on the same diagram lauras optimal decisions before and after the lottery win along with his indifference curves. 3. Based on your diagram, discuss whether Laura will quit her job.

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