Microeconomics
Microeconomics
11th Edition
ISBN: 9781260507140
Author: David C. Colander
Publisher: McGraw Hill Education
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Chapter 19.A, Problem 2QE

a)

To determine

The most and the least preferable budget constraints of Person Z.

b)

To determine

The marginal rate of substitution of hot dogs for video games.

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Rick consumes 2 goods, Chicken McNuggets (M) with Szechuan sauce (S). His utility function is U(M, S) = M2/3S1/3 and his income is m. The price of Chicken McNuggets is p, and the price of Szechuan sauce is 1. g. On the same graph, show the (hypothetical) budget constraint that is tangent to the indifference curve from part (e) but parallel to the budget constraint in part (f). h. On the same graph, show the income and substitution effects of the increase in p from 1 to 2 on Rick’s consumption of Chicken McNuggets. Are Chicken McNuggets a normal or inferior good for Rick? Explain your answer. i. Find the equation representing the (hypothetical) budget constraint drawn in part (g). Hint: you know this budget constraint has the same prices as in part (f), so you need to find the income level m that makes the budget constraint just tangent to the indifference curve passing through Rick’s chosen consumption bundle in part (e).
Rick consumes 2 goods, Chicken McNuggets (M) with Szechuan sauce (S). His utility function is U(M, S) = M2/3S1/3 and his income is m. The price of Chicken McNuggets is p, and the price of Szechuan sauce is 1. a. Write down Rick’s budget constraint. What is the slope of his budget constraint? b. Find Rick’s marginal utilities of each good, and find his marginal rate of substitution (MRS). c. Write down an equation showing the relationship between Rick’s MRS and the slope of his budget constraint that must hold if Rick is maximizing utility.
3. Tom's utility function is U (x; y) = 3x+4y: His budget constraint is ax + by = 1, a,b,I > 0 a) Derive the demand function of x. b) Derive the demand function of y. c) Please draw the demand curve for y. d) If the price of x increases from a to c; what would the value of the Hickis substitution effect of x be?
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