SODA (Cans) 3. Indifference curves and preferences Alyssa likes both soda and ice cream. Assume that the "more is better" principle applies to Alyssa; that is, she would always prefer to consume more of either good, holding the consumption of the other good constant. The points on Figure 1 represent combinations of ice cream and soda that Alyssa might choose to consume. Figure 2 shows the same points as Figure 1, but it also shows some of Alyssa's indifference curves: 11, 12, and 13. These curves show more information about Alyssa's preferences than Figure 1. H B Figure 1 ICE CREAM (Cones) (?) SODA (Cans) 12 13 H B Figure 2 ICE CREAM (Cones) Complete the following table by indicating which bundles Alyssa strictly prefers to A given only the information in each figure. Information Given By... B C D E F G H Figure 1 Figure 2 (?)

SODA (Cans) 3. Indifference curves and preferences Alyssa likes both soda and ice cream. Assume that the "more is better" principle applies to Alyssa; that is, she would always prefer to consume more of either good, holding the consumption of the other good constant. The points on Figure 1 represent combinations of ice cream and soda that Alyssa might choose to consume. Figure 2 shows the same points as Figure 1, but it also shows some of Alyssa's indifference curves: 11, 12, and 13. These curves show more information about Alyssa's preferences than Figure 1. H B Figure 1 ICE CREAM (Cones) (?) SODA (Cans) 12 13 H B Figure 2 ICE CREAM (Cones) Complete the following table by indicating which bundles Alyssa strictly prefers to A given only the information in each figure. Information Given By... B C D E F G H Figure 1 Figure 2 (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Abby likes tangerines and oranges. For every 4 tangerines, Abby is equally happy to consume 2 oranges instead. Let x be the number of tangerines, and y be the number of oranges. (a) Graph Abby's indifference curves. Make sure to mark the direction of the preferred bundles. (b) Write down an utility function that represents Abby's preferences. (c) Write down another utility function different from your previous answer but also represents Abby's preferences. (d) Does v(x, y) = x + y represent Abby's preferences? (e) What is Abby's marginal rate of substitution? (f) Suppose that px = 1, py = 1, and Abby has Y = 20. Compute Abby's optimal consumption bundle.
4. Tim wants to maximise his utility given his utility function of U (A, B) = A² B¹. He faces the following prices and income: PA = 25; PB = 20; M = 250. However, a change in the price of good A to PA 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? = (a) Tim would require £54 less income (b) Tim would require £18.33 more income (c) Tim would require £10 less income (d) Tim would require £16.66 more income (e) Tim would require £16.66 less income
Paul loves hot drinks, and he has a part of his weekly budget earmarked for buying them. In the diagram below, you can find three examples IC1, IC2 and IC3 for indifference curves that represent Paul's preferences for tea and coffee, and three examples X, Y and Z for specific bundles of weekly tea and coffee consumption.
Questions 4 (Choice & Demand). Suppose a consumer's utility function is given by: U(xi, x2 ) = x" a) What is the consumer's demand for x, as a function of income and prices? What is the consumer's demand for x; as a function of income and prices? Use Lagrange method or your intuition. b) What percentage of income does the consumer spend on x;? What percentage of income does the consumer spend on x2?
Emily is a utility maximizer. Her income is $100, which she can spend on cafeteria meals and on notepads. Each meal costs $5 and each notepad costs $2. At these prices Emily chooses to buy 16 cafeteria meals and 10 notepads. a) Draw a diagram that shows Emily’s choice using an indifference curve and her budget line, placing notepads on the vertical axis and cafeteria meals on the horizontal axis. Label the indifference curve, I1, and the budget line BL1. Make sure you calculate the endpoints of the budget constraint. b) The price of notepads falls to $1; the price of cafeteria meals remains the same. On the same diagram, draw Emily’s budget line with the new prices and label it BL2. c) Lastly, Emily’s income falls to $90. On the same diagram, draw his budget line with this income and the new prices and label it BL3. Is she worse off, better off, or equally as well off with these new prices and lower income than compared to the original prices and higher income?
1) Max chooses to purchase movie tickets and restaurant meals every week with his $100. If the price of a movie ticket is $20 and the price of a restaurant meal is $25, then the slope of his budget constraint will be, a) 1/5 b) -1/5 c) 4/5 d) -4/5 2) Marginal rate of substitution(MRS) is the rate at which consumer is willing to trade one good for another. It must be true that: a) MRS is the slope of an indifference curve in reference to a particular bundle of goods. b) MRS is not the same along an indifference curve that is of usual shape. c) MRS is same along an indifference curve that is of usual shape. d) Both a) and b).
1) Elaine wants to keep a good balance of soup and Jujyfruit (a delicious fruit flavored candy) in her diet. Her preferences over bundles of soup and Jujyfruit are represented by the quasi-linear utility function U(S,J) = J0.5 + S, where S and J denote the quantities of soup and Jujyfruit, respectively (Assume fractional quantities of each good can be consumed). Let Ps & Pj denote the prices of the goods and Y denote Elaine's monthly income for spending on these goods. For this exercise, treat soup as the x-axis good. a) Find Elaine's Marshallian demand for soup and Jujyfruit. Is soup a normal or an inferior good? Justify your answer using calculus. Also, calculate the derivative of Marshallian demand for Jujyfruit with respect to income and briefly explain what this implies about the relationship between the demand for Jujyfruit and income for Elaine. b) Now, assume Pj = $5 and Ps Marshallian demanded quantities of Jujyfruit and soup given these prices and income. Use your answers…
Amy consumes x and y and her preferences can be represented by the following utility function U(x,y) = 4x + y. 1. Are Amy's preferences transitive? 2. Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x? Explain. 6- 3. Can you use (2) to answer whether Amy's preferences are strictly monotonic? 4. What is MRS.y ? Is MRSx.y diminishing, constant, or increasing as the consumer substitutes x for y along an indifference curve? 5. On a graph with x on the horizontal axis and y on the vertical axis, draw a typical indifference curve. Also indicate on your graph whether the indifference curve will intersect either or both axes. Label the curve U1. 6. Are Amy's preferences convex? Are they strictly convex? Explain
Question 3: Samantha has $3,000 to spend on two goods: sandwiches and beer. The price of a sandwich is $6 and price of a beer is $5. a) Draw Samantha's budget line. Put beer on the horizontal axis. b) If Samantha's optimal consumption bundle contains 400 sandwiches, how many beer does her optimal consumption bundle contain? Show her optimal consumption in the graph above. c) Draw Samantha's indifference curve crossing her optimal consumption bundle.
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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.