Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of the income effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. g. Based on your answers to parts e and f, is ramen a normal or an inferior good for Riley?

Riley has $6 to spend on ramen and apps for their phone. The price of a bowl of ramen is $2, and the price of an app is $1. Riley's preferences for ramen and apps are represented by the indifference curves on the next page. a. Determine which line (L1, L2, L3, L4, or L5) represents Riley's budget constraint. b. Find the utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of ramen Riley will buy. Suppose now that the price of a bowl of ramen is discounted for students to $1 per bowl. c. Determine which line (L1, L2, L3, L4, or L5) represents Riley's new budget constraint. d. Find the new utility-maximizing bundle for Riley (E1, E2, E3, E4, or E5). Determine how many bowls of Ramen Riley will now buy. e. Find the size and direction (positive or negative) of the substitution effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. f. Find the size and direction (positive or negative) of the income effect. As part of your answer, state the starting quantity and ending quantity of bowls of ramen that represent this effect. g. Based on your answers to parts e and f, is ramen a normal or an inferior good for Riley?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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R2) The only fruits Dana buys are apples (x) and/or berries (y). She spends $30 on fruits per month. Her utility for fruits is given by u = 4y+xy, with marginal utilities MUxy and MU, 4+x. The price of apples is Px=$1 and the price of berries is Py = $2. a) Draw her budget line (BL) in a diagram. Show the calculations needed to do so. (Your graph does not need to have accurate scale- simply indicate the relevant values in each axis of the graph). b) In the same diagram, draw her indifference curve (IC) for a utility level of 100. Show the calculations needed to do so. (Hint: Find the combinations on the IC for x=1, x=6, x=16). c) Graphically (without using the mathematical method), find her optimal choice (x,y*). Explain in words how we figure out the optimal choice using the budget line and indifference curves only. [Answer for part (c): approximately (x*,y)=(13,8.5)) 32878820NAMEN JU 29 26 25 24 21 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 0123456TBOON! I am confused on how…
8. Normal and inferior goods Antonio likes going to the ballpark to watch baseball, and he also is fond of going to the theater to listen to the symphony orchestra. The following diagram shows two of Antonio's indifference curves for going to ballgames and symphonies. With Antonio's initial budget constraint (BC1), he chose to go to four symphonies and six baseball games per month (point X). Then his budget constraint shifted to BC2, and he chose to go to five symphonies and three ballgames per month (point Y). BALLGAMES 3 8 10 0 4 5 SYMPHONIES BC 8 BC 10 ? Of the following choices, which could have shifted Antonio's budget constraint from BC₁ to BC2? Check all that apply. His income increased while the prices of baseball and symphony tickets stayed the same. The prices of both baseball and symphony tickets increased while his income stayed the same. His income decreased while the prices of baseball and symphony tickets stayed the same. normal The price of symphony tickets increased…
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Chapter 22 Homework Poornima likes going to the ballpark to watch baseball, and she also is fond of going to the theater to listen to the symphony orchestra. The following diagram shows two of Poornima's indifference curves for going to ballgames and symphonies. With Poornima's initial budget constraint (BC B₁), she chose to go to two symphonies and six baseball games per month (point x). Then her budget constraint shifted to BC, and she chose to go to five symphonies and five ballgames per month (point Y). SYMPHONIES Of the following choices, which could have shifted to Poornima's budget constraint from BC₁ BC₂ ? Check all that apply. The prices 2 both baseball and symphony tickets decreased while her income stayed the same. Her income decreased while the prices of baseball and symphony tickets stayed the same. The price of symphony tickets increased while her income and the price of baseball tickets stayed the same. Her income increased while the prices of baseball and symphony…
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The tables show the utility Parker experienced from consuming varying quantities of waffles and pancakes. Assume that waffles cost $2.00 each, pancakes cost $1.00 each, and that Parker has $8.00 to spend on these two goods. Since Parker cannot afford more than four waffles or eight pancakes, the utility is given only for quantities smaller than these. Quantity of waffles Total utility of waffles Marginal utility of waffles 1 100 100 2 180 80 3 240 60 4 270 30 Quantity of pancakes Total utility of pancakes Marginal utility of pancakes 1 40 40 2 70 30 3 90 20 4 105 15 5 115 10 6 120 5 7 123 3 8 125 2 Given his budget constraint, determine what quantities of waffles and pancakes Parker will consume to maximize utility. quantity of waffles: waffleswaffles quantity of pancakes: pancakes
Lucia lives in Denver and enjoys drinking lattes and eating scones. The price of a latte is held constant at $4 throughout this problem. On the following graph, the purple curves (1₁ and 12) represent two of Lucia's indifference curves. The lines BC₁ and BC₂ show two budget constraints. Points X and Y show Lucia's optimum consumption bundles subject to these budget constraints. 20 18 16 14 12 10 8 6 4 ¹/₂ 2 0 2 4 10 16 18 20 SCONES Given the preceding graph and knowing the price of a latte is $4, Lucia's available income for lattes and scones is LATTES 0 Slope: -2 X-Intercept: 9 Y-Intercept: 18 6 BC 8 12 14 BC
Alex has a monthly budget of $72 to spend on commuter train trips and organic pasta. Each train trip costs $12; each box of pasta costs $6. Alex's preferences for train travel and pasta are represented by the indifference map on the following page. a. Determine which line (L1, L2, L*, or L**) represents Alex's budget constraint. b. Find their utility-maximizing bundle (E1, E2, e*, or e**). How many train trips will Alex take? Suppose the state government establishes a program to subsidize public transportation for commuters, such that each train trip now costs Alex $6. c. Determine which line (L1, L2, L*, or L**) represents Alex's new budget constraint. d. Find their new utility-maximizing bundle (E1, E2, e*, or e**). Determine how many train trips Alex will now take. e. Find the size and direction (positive or negative) of the substitution effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. f. Find…
Suppose Jane spends $48 each month on Oreo cookies with a price of $2 per package, and salt and vinegar chips with a price of $3 per bag. a) With chips on the horizontal axis, draw Jane budget constraint, making sure to indicate the horizontal and vertical intercepts. b) Suppose that at current prices, Jane purchases 6 bags of chips each month. Draw an indifference curve tangent to Jane budget constraint consistent with this choice (assume Jane is maximizing her utility). Label her chosen bundle with the letter A. How many packages of Oreos does Jane buy? c) Suppose that the price of chips falls to $2 per bag, and Jane increases her chip consumption to 8 bags each month. Draw Jane’s new budget constraint and indicate her chosen bundle with an appropriately drawn indifference curve. Label her utility-maximizing bundle with the letter B. (Be sure to determine the right quantities of both chips and Oreos!) d) A major chip producer has experienced a fire, and the disruption of supply has…
2. Sally consumes two goods, X and Y. Her utility function is given by the expression U = 3XY². The current market price for X is £10, while the market price for Y is £5. Sally's current in come is £500. (a) Sketch a set of two indifference curves for Sally in her consumption of X and Y. (b) Write the expression for Sally's budget constraint. Graph the budget constraint and determine its slope. (c) Determine the X,Y combination which maximises Sally's utility, given her budget constraint. (d) Calculate the impact on Sally's optimum market basket of an increase in the price of X to $15. What will happen to her utility as a result of the price increase?
preferences are represented by the utility function The prices of X1 and x₂ are p₁and p2 u(x₁, x₂) = x²x² 1. What is the slope of the indifference curve at the point (x₁, x₂) 2. Find the budget line tangent to the indifference curve (x₁, x₂) 3. When consuming the best bundle that can afford, what fraction of his income does Ken spend on point x₁ 4. Find x and x2