The following figure shows the indifference curves and two budget line of student Tuna whose choices are apple and banana. The Initial price of Banana is €4/kg, when budget line is B1. Initially Tuna was at equilibrium at point A. Answer the following questions according to the information given on the diagram. Show your calculations below. a. What is the weekly Income of Tuna? () b. If Tuna's initial preference is at A how much Banana she consumes? (" c. If Price of Banana decreases to €3/kg and she moves to point B, how much Apple she will consume at B? (. d. If the demand curve for Banana will be derived by using the indifference curves on figure 1, what will be the Price and quantity coordinates of Point A and Point B on figure 2? Apples Price Bananas Quantity

The following figure shows the indifference curves and two budget line of student Tuna whose choices are apple and banana. The Initial price of Banana is €4/kg, when budget line is B1. Initially Tuna was at equilibrium at point A. Answer the following questions according to the information given on the diagram. Show your calculations below. a. What is the weekly Income of Tuna? () b. If Tuna's initial preference is at A how much Banana she consumes? (" c. If Price of Banana decreases to €3/kg and she moves to point B, how much Apple she will consume at B? (. d. If the demand curve for Banana will be derived by using the indifference curves on figure 1, what will be the Price and quantity coordinates of Point A and Point B on figure 2? Apples Price Bananas Quantity

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(Table: Optimal Choice of Yogurt and Cheese) Use Table: Optimal Choice of Yogurt and Cheese. The price of yogurt is $2 per unit, and the price of cheese is $4 per pound. Hailey's income is $16. If she spends all of her income on cheese, the most she can buy is pounds of cheese, and her total utility will be Table: Utility from Yogurt and Cheese Number of yogurts 0 1 2345678 O O O 8; 240 4; 22 6; 204 4; 152 Total utility for yogurt 0 32 60 84 104 120 132 140 144 Pounds of cheese 0 1 2 3 4 5 6 7 8 Total utility for cheese 0 44 84 120 152 180 204 224 240
8) A consumer has to choose the optimal amount of cheese and crackers to purchase. He or she has drawn his or her budget constraint (BC) and indifference curves on a graph with the amount of cheese (in ounces) on the horizontal axis and the amount of crackers (in packages) on the vertical axis. Which of the following statements is true if the price of cheese increases? The BC rotates such that it intersects the vertical axis at the same point as before and intersects the horizontal axis at a higher quantity of cheese. The BC shifts to the left (down). The BC rotates such that it intersects the vertical axis at the same point as before and intersects the horizontal axis at a lower quantity of cheese. The BC shifts to the right (up).
5. Your budget is spent on either food or entertainment, both being normal goods. Suppose there is a rise in the price of food. a) In what direction would the substitution effect push the consumption of food? [Hint: The substitution effect measures the effect of what on what? What is the sign of the effect? In which direction has the relative price of food changed? So in what direction will the consumption of food change?] b) In what direction would the income effect push the consumption of food? c) In what direction would the substitution effect push the consumption of entertainment? d) In what direction would the income effect push the consumption of entertainment? e) If you know that consumption of entertainment falls, what would you conclude about the relative magnitudes of the income and substitution effects?
4) Suppose that Jane is willing (at her current consumption bundle) to trade two apples for three oranges and still be at the same level of well-being. Does this mean that Jane likes apples more than oranges? Briefly explain assuming that Jane has normal (well-behaved) preferences.
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2. Muhammad's demand for fresh fish is perfectly income inelastic, and his income increases. If Muhammad's preferences for fish are well-behaved, show the effect of this increase in income on the change in his optimal choice of fresh fish, his expenditure on all other goods, and draw his income-consumption curve. Clearly label your graph.
CS 11 Economics
2. Ping receives a weekly allowance to purchase soda (x) and juice (y) at school. His preferences over these two goods can be represented by the utility function U(x,y) =0.5x+ 5lny where x represents the number of cans of soda and y represents the number of juice boxes. a) Given his preferences find his Marshallian demand functions for soda (x) and juice (y). b) Suppose that the price of a can of soda is $1.5 and that Ping has $30 to spend on soda and juice. Write Ping's demand curve for juice (y). Illustrate his demand curve. c) Suppose that the price of a box of juice is $1 (the price of soda and income remain $1.5 and $30, resp.). Use your demand functions to find his best bundle. In an indifference curve diagram illustrate his best bundle at these prices. For the remainder of the question assume that Ping's allowance (income) rises to $36 per week and the prices of the two goods are unchanged at Px= $1.5 and Py= $1. d) Use your demand functions to find his new best bundle. e)…
2)Ben is choosing between cookies and soda. Denote the marginal utility of cookies is MUc, and the marginal utility of soda is MUs. Which of the following relationship is true regarding the marginal utility of substitution (MŘS) of cookie in terms of soda? A) MRS= MUc B) MRS = MUS C) MRS = MUS / MUC D) MRS = MUc / MUs
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?
Good Y 40 30 0 L L1 L2 8* e₁ ./1 12 60 Good X I The arrow on the graph above shows the budget line movement from L¹ to L² resulting from a price change. Identify (using the reference tangency points) the substitution effect of the price change. Explain in words the difference between the substitution effect and income effect. Which distances between the points (e₁,e₂, and e') show the income and substitution effects?
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