Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 9PA
To determine
The budget constraints of the individual.
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Students have asked these similar questions
Bessie, who can currently work as many hours as she wants at a wage of w, chooses to work 10
hours a day. Her boss decides to limit the number of hours that she can work to 8 hours per day.
Show how her budget constraint and choice of hours change.
Bessie's budget constraint L is illustrated in the figure to the right.
For completing the following, assume the indifference curves satisfy the usual assumptions.
1.) Use the 3-point curved line drawing tool to draw an indifference curve for Bessie when she can
work as many hours as she wants. Label this curve '¹'.
2.) Use the 3-point curved line drawing tool to draw an indifference curve representing Bessie's
utility when she is restricted to work 8 hours per day. Label this curve 'IR¹.
Carefully follow the instructions above, and only draw the required objects.
Y, Goods per day
(-1,19.3)
Time constraint
10
8
L, Leisure hours per day
G
[
suppose you have a fixed income of $3000 per month and you want to allocate your budget between two products: X and Y. Let's say the price of good x is $10 per unit, and the price of good y is $20 per unit. What is the budget constraint? Draw it on a graph and label the intercepts and the slope.
What is the concept of diminishing marginal utility of consumers? How consumer use Marginal Rate of Substitution to reach consumer equilibrium level where MRTS = Px/Py?
Chapter 21 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QR
Ch. 21 - Prob. 7QRCh. 21 - Prob. 1QCMCCh. 21 - Prob. 2QCMCCh. 21 - Prob. 3QCMCCh. 21 - Prob. 4QCMCCh. 21 - Prob. 5QCMCCh. 21 - Prob. 6QCMCCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PACh. 21 - Prob. 13PA
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- Jack currently works 38 hours per week at a wage rate of $15 per hour. His marginal rate of substitution is $20 per hour. Is Jack's utility maximized? If yes, explain why. If no, explain why not and discuss what Jack should do in order to further increase utility.arrow_forwardJoseph earns $200 per week and spends his entire income on cheese which cost $5 per pound and crackers which cost $ 2 per box. Draw Josephs budget constraint. If the price of cheese increases to $8 per pound, what will happen to Josephs budget constraint?arrow_forwardSuppose your classmate Hilary loves to eat dessert-so much so that she allocates her entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $1.25, and the price of a piece of coconut crème pie is $5.00. At her current level of consumption, Hilary's marginal rate of substitution (MRS) of apple crisp for pie is 4. In other words, Hilary is willing to sacrifice four bowls of apple crisp for one piece of pie per week. Does Hilary's current consumption bundle maximize her utility? That is, does it make her as well off as possible? If not, how should she change it to maximize her utility? O Hilary could increase her utility by buying more apple crisp and less pie per week. Hilary could increase her utility by buying less apple crisp and more pie per week. O Hilary's current bundle maximizes her utility, and she should keep it unchanged.arrow_forward
- Make a curve of the budget line curve with the Indifference curve, make a separation between the substitution effect and the income effect Continue to make the demand curve decreasearrow_forwardCharles lives in New York City and loves to eat desserts. He spends his entire weekly allowance on jello and pie. A bowl of jello is priced at $1.25, and a piece of pumpkin pie is priced at $5.00. At his current consumption point, Charles's marginal rate of substitution (MRS) of jello for pie is 3. This means that Charles is willing to trade three bowls of jello per week for one piece of pie per week. Does Charles's current bundle maximize his utility-in other words, make him as well off as possible? If not, how should he change it to maximize his utility? Charles could increase his utility by buying more jello and less pie per week. O Charles could increase his utility by buying less jello and more pie per week. Charles's current bundle maximizes his utility, and he should keep it unchanged.arrow_forwardJulio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, the price of food is $2 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain. Julio's marginal rate of substitution equals A. 3.50, which is the price of clothing divided by the price of food. B. 0.29, which is the price of food divided by the price of clothing. C. 0.29, which is the price of clothing divided by the price of food. D. 3.50, which is (minus) the slope of the budget line. E. 3.50, which is Julio's level of satisfaction. Suppose instead that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than your answer above? Explain. If Julio is instead consuming a bundle with more food and less clothing…arrow_forward
- Mary spends all her budget on statistical software (S) and office supplies(O). Her preferences can be represented by the utility function: U(S, O) =2 ln(S) + 3 ln(O). Compute the marginal rate of substitution of software for office supplies. Is the MRS increasing or decreasing in S? How do we interpretthis?arrow_forwardJulie buys food and other goods. She has an income of $400 per month. The price of food is initially $1.00 per unit. It then rises to $1.20 per unit. The prices of other goods do not change. To help Julie out, her mother offers to send her a check each month to supplement her income. Julie tells her mother, “Thanks, Mom. If you would send me a check for $50 per month, I would be exactly as happy paying $1.20 per unit as I would have been paying $1.00 per unit and not receiving the $50 from you.” Which of the following statements is true? Explain. The increased price of food has:a) an income effect of +$50 per monthb) an income effect of -$50 per month c) a compensating variation of +$50 per monthd) a compensating variation of -$50 per monthe) an equivalent variation of +$50 per monthf ) an equivalent variation of -$50 per montharrow_forwardFind the attached file.arrow_forward
- Amy lives in Detroit and loves to eat desserts. She spends her entire weekly allowance on yogurt and pie. A bowl of yogurt is priced at $1.75, and a piece of pumpkin pie is priced at $7.00. At her current consumption point, Amy's marginal rate of substitution (MRS) of yogurt for pie is 5. This means that Amy is willing to trade five bowls of yogurt per week for one piece of pie per week. Does Amy's current bundle maximize her utility—in other words, make her as well off as possible? If not, how should she change it to maximize her utility? A. Amy's current bundle maximizes her utility, and she should keep it unchanged. B. Amy could increase her utility by buying more yogurt and less pie per week. C. Amy could increase her utility by buying less yogurt and more pie per week.arrow_forwardConsider an indifference curve for someone deciding how to allocate time between work (and thus consumption) and leisure. Suppose the wage increases. An increase in the wage rate results in a substitution effect for consumption. If consumption is a normal good, an increase in the wage rate results in a income effect, but if consumption is an inferior good, the income effect is . True or False: The person's consumption may fall as a result of the higher wage if consumption is an inferior good. True Falsearrow_forwardExplain how MRS = MRT is derived for consumers who want to maximize their well-being utility subject to their budget constraint. Also explain how marginal utilities divided by each price of the good are equalized across the available goods is also derived for consumers who want to maximize their being utility subject to their budget constraint.arrow_forward
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