Rita has a budget of £600 to spend on theatre tickets (X) and on restaurant meals (Y). Each theatre ticket is priced at £60 (denoted by Px), whereas the price of a restaurant meal (Py) is £30. Her utility function is U(X,Y) = 8\X + Y, which gives marginal utilities = 1. Her indifference curves are convex to the origin. MUX 4 and MUy VX (a) Find the equation of Rita's budget line. Explain how Rita decides to spend her budget with the aid of a diagram. (b) Find the number of theatre tickets and restaurant meals Rita purchases. (c) Rita receives a pay rise and so increases her budget for theatre tickets and restaurant meals to £660. Find the number of theatre tickets and restaurant meals Rita now purchases.
Rita has a budget of £600 to spend on theatre tickets (X) and on restaurant meals (Y). Each theatre ticket is priced at £60 (denoted by Px), whereas the price of a restaurant meal (Py) is £30. Her utility function is U(X,Y) = 8\X + Y, which gives marginal utilities = 1. Her indifference curves are convex to the origin. MUX 4 and MUy VX (a) Find the equation of Rita's budget line. Explain how Rita decides to spend her budget with the aid of a diagram. (b) Find the number of theatre tickets and restaurant meals Rita purchases. (c) Rita receives a pay rise and so increases her budget for theatre tickets and restaurant meals to £660. Find the number of theatre tickets and restaurant meals Rita now purchases.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
How do I do this?
Transcribed Image Text:Rita has a budget of £600 to spend on theatre tickets (X) and on restaurant meals (Y).
Each theatre ticket is priced at £60 (denoted by Px), whereas the price of a restaurant
meal (Py) is £30. Her utility function is U(X, Y) = 8\X + Y, which gives marginal utilities
MUx
4
and MUy = 1. Her indifference curves are convex to the origin.
VX
(a) Find the equation of Rita's budget line. Explain how Rita decides to spend her
budget with the aid of a diagram.
(b) Find the number of theatre tickets and restaurant meals Rita purchases.
(c) Rita receives a pay rise and so increases her budget for theatre tickets and
restaurant meals to £660. Find the number of theatre tickets and restaurant
meals Rita now purchases.
(d) For Rita are theatre tickets and restaurant meals normal goods, inferior goods or
not associated with income?
(e) Suppose the price of restaurant meals falls. How do you expect Rita's demand
for theatre tickets to change? Explain with reference to substitution and income
effects.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education