10. Deriving demand from an indifference mapAlyssa lives in Dallas and enjoys drinking lattes and eating scones. The price of a latte is held constant at $4 throughout this problem.On the following graph, the purple curves (I and I2) represent two of Alyssa's indifference curves. The lines BC, and BC2 show two budgetconstraints. Points X and Y show Alyssa's optimum consumption bundles subject to these budget constraints.18161412Y108BO+0 248.10141618SCONESGiven the preceding graph and knowing the price of a latte is $4, Alyssa's available income for lattes and scones is $2012202)LATTES Given the preceding graph and knowing the price of a latte is $4, Alyssa's available income for lattes and scones is $Using the income amount you just computed, complete the following table by finding the price of a scone when BC1 represents Alyssa's budgetconstraint and when BC2 represents her budget constraint. Then indicate the quantity of scones consumed in each of those scenarios.PriceConsumptionWhen Alyssa's budget constraint is...(Dollars per scone)(Scones)BC1BC2Given the price-quantity combinations from the preceding table, use the blue line (circle symbol) to plot Alyssa's demand for scones on the followinggraph.Hint: Assume that Alyssa's demand for scones is a straight line. You should derive two points on the demand curve from the preceding graph. Thenplace the blue line on the following graph so that it passes through these two points.109.Demand8.721+481012141618QUANTITY (Scones)204.3.PRICE (Dollars per scone)

Lattes is measured on Y-axis Scones is measured on X-axis. --------------------- Y-axis intercept of…

Answered: Using the income amount you just…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Philip's utility function is U(q1,q2)=4q10.26+q2. Part 2 Calculate the substitution, income, and total effects for a change in the price of q1 on the demand forq1. The substitution effect for a change in p1 is ε*= .... the income effect is θξ=... and the total effect is ε=... (Round your responses to 2 decimal places and include a minus sign as necessary.)
Suppose that there are two goods, gl and g2, that Jane consumes. Demand functions for these two goods are given as follows: gl * = gl(pg1), pg2 ,Inc) g2 * = g2(pg1), pg2 ,Inc) where pg1, pg2 ,Inc refer prices of the goods and income, respectively. Explain and demonstrate (on the graph) the substitution and income effect for both an increase and decrease in price good g1. Use the notations given in the question.
Refer to the information provided in Figure below to answer the question that follow. Bill's monthly budget constraint C Number of black beans per month Refer to Figure Bill's budget constraint is AC. His budget constraint would shift to AB if the price of Select one: http a. black beans increased. hp Number of bell peppers per month
Suppose Bill is on a low-carbohydrate diet. He can eat only three foods: Rice Krispies, cottage cheese, and popcorn. The marginal utilities for each food are tabulated below. Bill is allowed only 167 grams of carbohydrates daily. Rice Krispies, cottage cheese, and popcorn provide 25, 6, and 10 grams of carbohydrates per cup, respectively. Referring to the accompanying table, respond to the following questions: Please check the image provided for the table.
Assume the following expression summarizes an individual's demand for good #1: qª (P1, P2, Y) = 10 – pi + 2p2 – Y Currently, the individual's available income is $10 (y = 10), the price of good #1 is $8 (p1 = 8), and the price of good #2 is $5 (p2 = 5). Which one of the changes below would cause the largest increase in the individual's consumption of good #1? O The price of good #1 falls by 1% The price of good #1 increases by 1% The price of good #2 falls by 1% O The individual's income falls by 1%
Derive and plot Madeline's demand curve for Coke if she views Coke and Pepsi as perfect substitutes. (Hint: The quantity of Coke consumed where the budget line hits the Coke axis is Y/Pc, where pc is the price of Coke, pp is the price of Pepsi, and Y is income.) Use the 3-point curved line drawing tool to draw Madeline's demand curve for Coke. To simplify the analysis, assume that if the price of Coke and the price of Pepsi are equal, then Madeline, though indifferent between the two, only consumes Coke. Label this curve 'Demand'. Carefully follow the instructions above, and only draw the required objects. C Price/can of Coke Pp Y Pc Coke, Cans per year
The graph below shows David’s preferences for leisure and consumption. Draw three budget constraints in the graph below. One if David’s wage is $10 per hour (BC1), another if his wage is $20 per hour (BC2) and a third for if his wage is $30 per hour (BC3). Show the optimal combination of leisure and consumption for each of the three budget constraints. Label the optimal amount of Leisure, L1, L2 & L3, and label the optimal amounts of consumption C1, C2 & C3.
The following figure shows the demand curve of commodity x (for a level of income W and the prices of the other commodities constant). The income effect due to an increase in the price of commodity x from 10 to 11 is: Positive Cannot be determined from the graph. Negative Dominated by the substitution effect Could be positive or negative.
Mia is a registered nurse. She has 18 hours per day to devote to labor or leisure, and has $20 nonlabor income per day. She is paid $10 per hour for the first 8 hours of work and $15 per hour for overtime (for hours worked over 8 hours). Mia's preferences are represented by U(C, R) = CR utility function, where Cis the amount of dollars she spends on consumer goods and R be the number of hours of leisure that she chooses. Question 1 Part a Assuming she can work as many hours per day as she wishes, draw Mia's indif- ference curves, budget constraints and solve for her optimal consumption and leisure choices. Question 1 Part b Suppose that Mia's wage rate rises to $11 an hour for the first 8 hours. She is still paid $15 per hour for overtime. Again, find her optimal choice. Decompose the total change in demand due to a price change into a substitution effect, ordinary income effect and endowment income effect and graphically demonstrate each effect.
Sean and Yvette Durand live in Detroit and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the following diagram, the purple curves ₁ and 12 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $1,000 per month available to spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the corresponding indifference curve. N ▬▬▬▬▬▬▬▬▬ DINER BREAKFASTS 0 5 6 M BC₁ 8 FANCY DINNERS H BC2
Bunde's preferences are given by the utility function u(x1, x2) = x, + x2. For each of the following cases, decompose the price effects into the substitution and income effects using the Hicks-Allen decompositions. (For each part, use the given template to draw the constraints, and then use your completed graph to fill in the description. Enter any points in order from left to right as they would appear on the graph.) 20 15 10 5 10 15 20 (a) Suppose m = 120, P1 = 10, and p2 = 15. The price p1 then falls to 6, keeping p2 and m fixed. Given m = 120 and p, = 15, the budget B° is drawn for p, = 10. The utility-maximizing point on this budget is at A = given the linear preferences yielding utility y° = When p, falls to 6, the new budget is B" and the utility-maximizing point is C = ), yielding utility un = . The movement from A to C is the price effect of units of good 1. Removing income incrementally until Bunde can barely afford the old utility of at the new prices yields the line which…
Question 3 3.1 Slutsky's equation relates the Marshallian demand function to the Hicksian demand func- tion, and therefore provides a way in which to decompose the total effect of a price change on quantity demanded into the substitution and income effects. Provide an expression for the general Slutsky equation of a good (x;) with respect to changes in the price of x;, and clearly label the total effect, substitution effect and income effect. 3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function v(р, у) (1-a) and Hicksian demand function for good 1 * (p, u) P2 ( Pi = au Pi P2 Demonstrate that the Slutsky equation holds for the own-price effect for good r1-

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