To determine the utility maximizing consumption of two products one uses the formula that is called the rule for maximizing utility: P1/P2-MU1/MU2 which also is stated as MU1/PU1-MU2/P2.. O Explains the Diamond-Water Paradox. Calculates the utility maximizing consumption of the two goods. All of the above are correct. None of the above are correct.

To determine the utility maximizing consumption of two products one uses the formula that is called the rule for maximizing utility: P1/P2-MU1/MU2 which also is stated as MU1/PU1-MU2/P2.. O Explains the Diamond-Water Paradox. Calculates the utility maximizing consumption of the two goods. All of the above are correct. None of the above are correct.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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For the case of two goods, give an example of a utility function U(x1, x2) that represents the preferences of a consumer who regards the two goods as perfect complements. Next, take the transformation f(U) = U³ of the your example utility function and explain if this newly gener ated function represents the original preferences. Further, provide clear arguments supporting or rejecting the claim that "f(U(x1, x2)) must be strongly increasing in (x1, x2)."
A consumer has GH¢600 to spend on two commodities, A and B. Commodity A costs GH¢20 per unit and Commodity B costs GH¢30 per unit. Suppose that the utility derived by the consumer from x units of Commodity A, and y Commodity B is given by the Cobb-Douglas utility functionU (x, y) = 10x0.6y0.4a. How many units of each commodity should the consumer buy tomaximize utility?b. Is the budget constraint binding?
An individual allocates $306 each month to buying two goods, X and Y, in such a way that maximizes their utility U (X,Y) = 2X Y i. Good X costs $4.25 and Good Y costs $17. If MUx = Y and MUy = X2, calculate the substitution and income effect for Good X when the price of Good %3D Y X falls to $3.40. Do not round your intermediate calculations, but you can round your final answers for units of X and Y to two decimal places.
Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. What is the algebraic equation for Mrs. Griffiths budget constraint if dresses cost $25 each and handbags cost $14 each? How many of each good will she buy and represent this on a budget line with handbags on the horizontal axis Draw an indifference curve showing the optimum choice. Label the optimum as point A. What would be the marginal rate of substitution at the point that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution
1. Consider a consumer who consumes two goods. The utility function is given by u(x1, x₂) /2x1+1+√√√x₂, - where x > 0 denotes the amount of good i = the price of good 1 is 3, the price of good 2 is p2 > 0, and the income is 12. 1,2 consumed. Unless stated otherwise, (1) Calculate the marginal rate of substitution (measuring the value of good 1) at the consumption plan (x₁, x₂) = (3, 4). (2) Calculate the consumption plan that is optimal for the consumer. (3) Let v(p₂) denote the utility level at the optimal consumption plan. Calculate its derivative with respect to p2, i.e., v'(P2), at p2 = 3. (4) Suppose that p2 = 1 and the utility level is 10. Calculate the compensated demand for each good.
Coming on to the main solution, we have been given a perfect substitute utility function. Remember, if any utility function Ujs in the form: U = ax + by, then it means that goods X and Y are perfect dubstitutes of each other. The utility cusive in this case is represented by a down word sloping straight line. At every point on the curve, the MRS remains constant, unlike a Convex Utility curve, in which regular MRS reduces from left to eight Note: When a consumer. faces perfect dubstitute utility function, then he/she Consumes at the corner point. It depends upon the ratio between Marginal Utilities of particular good and its respective police. мох Px For eg. if. if, мор Pr > U(X,Y)= 4x+ 3 Y MUX = du(x, y) 4 ১U(X, = ах +XR³ x 4 = 1/2/3/1 = 1. 4 мож Py мох Px - =1.33 Corner Points ) 1 U=ax+by ^ cosner then only x good is consumed Ju(x,x) = 3 ۵۷ points then only Y-good is consumed. MUY = JU(X,Y)
Hello, can you double-check these answers, please? I already got the answers to these questions but I wanted to make sure they are correct? 3) When the price of a good falls and customers tend to buy more of it instead of other goods, economists call this the ________ effect. A) substitution B) diminishing marginal utility C) income D) ceteris paribus Correct: D 11) Suppose that it is observed that the price of a commodity rises and that the quantity sold falls. From this we can deduce A) that the demand curve has shifted to the left, but we cannot deduce whether or not the supply curve has shifted. B) that the demand curve has shifted to the right, but we cannot deduce whether or not the supply curve has shifted. C) that the supply curve has shifted to the right, but we cannot deduce whether or not the demand curve has shifted. D) that the supply curve has shifted to the left, but we cannot deduce whether or not the demand curve has shifted Correct: A 35) When a…
Part 2 beginning with "now assume"
In two commodities world, utility function for a consumer and her income are given respectively. 11 U = x2y2 I= 480 If the price of these goods are Px= 15 and P, = 60 what would be her demand for these two goods * =? and y =? If the price of first good P has increased from 15 to 60. To keep her utility fixed how much does she need to spend for these two goods at least. In other words what should be her minimum income.
Peter's preferences over two goods, x and y, are represented by the utility function u(x, y) = y + 2x. a) Peter is currently consuming bundle A = (2,4) with 2 units of good x and 4 units of good y. Calculate his current level of utility from consuming this bundle. b) Write the expression the indifference curve representing Peter's current level of utility (i.e., the one you found in part (a). Next draw this indifference curve. c) By looking at the indifference curve you drew in part (b), answer the following questions: Does Peter like good x? Good y? Explain. What can you say about the marginal rate of substitution of good x for y, MRSxy? Is it positive? Negative? Constant? Increasing? Decreasing? Interpret/explain your answer in terms of the tradeoffs Peter is willing to make between goods to keep the same utility level. d) On the same graph you drew in part (b), draw the indifference curve for a utility level of 10. Plot and label in the graph bundles B = (1,2), C = (1,6), and D =…
12) A consumer’s preferences are given by U(X,Y) = X0.6Y0.4. The price of X is 4, and the price of Y is 5. The consumer has an income of $2000.a) What is the utility maximizing choice of X and Y?b) How would the utility maximizing choice change if price of X falls to 3 because of a pricesubsidy?c) Given the answers to the previous parts plot a linear demand function for X.d) Show that the consumer would prefer the cash equivalent of the price subsidy in part b.
Please tell me which of the multiple choices in question 1.6)1.7)1.8) are correct.State only the correct ones please. 1.6) The marginal rate of substitution (MRS) can be defined as: Select one or more: a. The amount of one good that the consumer is willing to trade for one unit of the other. b. The ratio of the amounts of two goods. c. The change in the consumer’s utility when one good is substituted for another. d. The absolute value of the slope of the indifference curve. 1.7) (SEE ATTACHED PICTURE) The diagram shows that: Select one or more: a. If Angela works 24 hours a day she can still survive. b. There is a technically feasible allocation where Angela does not work. c. A new technology that produced more grain would give a larger technically feasible set. d. If Angela needed less grain to survive the technically feasible set would be smaller.