Suppose a consumer has income of $20 and faces a price of good x of 50 cents. When the consumer maximizes utility between x and expenditures on AOG (E), he is on the following indifference curve: E= 312.5 / x+10 When the price of falls to 40 cents he moves to the following indifference curve: E = 360 / x+10 Use information about these indifference curves to derive 2 different measures of the change in consumer surplus from the price change. Explain what you have measured and show your work.

Suppose a consumer has income of $20 and faces a price of good x of 50 cents. When the consumer maximizes utility between x and expenditures on AOG (E), he is on the following indifference curve: E= 312.5 / x+10 When the price of falls to 40 cents he moves to the following indifference curve: E = 360 / x+10 Use information about these indifference curves to derive 2 different measures of the change in consumer surplus from the price change. Explain what you have measured and show your work.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 5SQP

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Concept explainers

Product and Price Bundling

Product and price bundling is used as a marketing strategy by businesses, where complementary products and services are combined and sold as a package deal. This bundled price is usually less than the total price of the individual products if they were to be sold separately. When bundled and sold, each product is sold at a reduced price. Using a price bundling strategy helps increase the average revenue per user and also increases the engagement with the user. This happens as the perceived value of the bundled products is more than the individual products.

Question

Suppose a consumer has income of $20 and faces a price of good x of 50 cents. When the consumer maximizes utility between x and expenditures on AOG (E), he is on the following indifference curve:

E= 312.5 / x+10

When the price of falls to 40 cents he moves to the following indifference curve:

E = 360 / x+10

Use information about these indifference curves to derive 2 different measures of the change in consumer surplus from the price change. Explain what you have measured and show your work.

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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