stricted. National travel was also restricted as was things that one usually does on a vaction, e.g. going to a restaurant. Let's assume that a typical consumer has the following utility function over going on a vacation trip (v) and other consumption goods (0): U(v, o) = v0.10,0.90 %3D Assume that the relative price of a vacation trip in terms of other goods was equal to one (p = = 1) and the yearly disposable income of the average consumer was I= 300, 000kr. Po (a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been? (b) The restrictions to travel during the pandemic could be expressed in the way that the average consumer could not (was not allowed) to spend more than 5000kr (or equivalently consume more than 5000 units of v). If we assume that both income and the relative price of vacationing was unchanged during the pandemic. How much would the average consumer spend on vacationing and on other goods (given that she uses all her income)? What would her utility have been? Il- lustrate the consumer's utility maximization problem with and with- out the restriction on travel in a diagram, using the concepts of a
stricted. National travel was also restricted as was things that one usually does on a vaction, e.g. going to a restaurant. Let's assume that a typical consumer has the following utility function over going on a vacation trip (v) and other consumption goods (0): U(v, o) = v0.10,0.90 %3D Assume that the relative price of a vacation trip in terms of other goods was equal to one (p = = 1) and the yearly disposable income of the average consumer was I= 300, 000kr. Po (a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been? (b) The restrictions to travel during the pandemic could be expressed in the way that the average consumer could not (was not allowed) to spend more than 5000kr (or equivalently consume more than 5000 units of v). If we assume that both income and the relative price of vacationing was unchanged during the pandemic. How much would the average consumer spend on vacationing and on other goods (given that she uses all her income)? What would her utility have been? Il- lustrate the consumer's utility maximization problem with and with- out the restriction on travel in a diagram, using the concepts of a
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:At least during 2020 international travel and vacationing was very re-
stricted. National travel was also restricted as was things that one usually
does on a vaction, e.g. going to a restaurant. Let's assume that a typical
consumer has the following utility function over going on a vacation trip
(v) and other consumption goods (0):
U(v, o) = vº.10,0.90
Assume that the relative price of a vacation trip in terms of other goods
was equal to one (p = = 1) and the yearly disposable income of the
average consumer was I= 300, 000kr.
Po
(a) Solve the consumer's utility maximization problem. How much would
she had spent on vacationing and other goods if there had been no
pandemic? What would her utility have been?
(b) The restrictions to travel during the pandemic could be expressed in
the way that the average consumer could not (was not allowed) to
spend more than 5000kr (or equivalently consume more than 5000
units of v). If we assume that both income and the relative price of
vacationing was unchanged during the pandemic. How much would
the average consumer spend on vacationing and on other goods (given
that she uses all her income)? What would her utility have been? Il-
lustrate the consumer's utility maximization problem with and with-
out the restriction on travel in a diagram, using the concepts of a
budget constraint and indifference curves.
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