Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
8th Edition
ISBN: 9781337607735
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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Chapter 21 Solutions
Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 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. 12PA
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- 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 [arrow_forwardsuppose 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.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_forward
- Suppose there are two goods, x and y. If one good has a negative price, and the other good has a positive price, then the slope of the budget constraint will be positive. is this true or false?arrow_forwardDraw indifference curves for two goods that are perfect complements and two goods thatare perfect substitutes. How do the indifference curves relate to utility functions?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_forward
- Sally consumes two goods, X and Y. Her utility function is given by the expression U(X, Y) = 3XY2. The current market price for X is $10, while the market price for Y is $5. Sally's current income is $500. a. Write the expression for Sally's budget constraint. Graph the budget constraint and determine its slope. b. Determine the X', Y’ combination which maximizes Sally's utility, given her budget constraint. Show her optimum point on a graph. (Partial units for the two quantities are possible.) c. Calculate the impact on Sally's optimum market basket of an increase in the price of X to $15. What would happen to her utility as a result of the price increase? Be specific.arrow_forwardSuppose your only source of income is work and that you are paid $20 per hour. This determines a budget constraint. You can buy free time at the expense of your income by working less. Likewise, you can get more income at the expense of your free time by working more. Suppose that you can choose how many hours you work. How do you decide exactly on which point of your budget constraint you will choose? Explain this by referring to your indifference curves.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
- A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup O’ Soup for $1.50 per meal. His weekly food budget is $60. Draw the budget constraint showing the trade-off between dining hall meals and Cups O’ Soup. Assuming that he spends equal amounts on both goods, draw an indifference curve showing the optimum choice. Label the optimum as point A. Suppose the price of a Cup O’ Soup now rises to $2. Using your diagram from part (a), show the consequences of this change in price. Assume that our student now spends only 30 percent of his income on dining hall meals. Label the new optimum as point B. What happened to the quantity of Cups O’ Soup consumed as a result of this price change? What does this result say about the income and substitution effects? Explain.arrow_forwardFind the attached file.arrow_forwardLorenzo enjoys going to the theater to see plays, and he also enjoys going to rock concerts. The following diagram shows two of Lorenzo's indifference curves for going to plays and concerts. With Lorenzo's initial budget constraint (BC1), he chose to go to five concerts and three plays per month (point X). Then his budget constraint shifted to BC2, and he chose to go to four concerts and six plays per month (point Y). PLAYS 10 0 4 5 CONCERTS BC 8 Show Transcribed Text BC 10 C Of the following choices, which could have shifted Lorenzo's budget constraint from BC₁ to BC₂? Check all that apply. The price of theater tickets increased while his income and the price of concert tickets stayed the same. His income decreased while the prices of theater and concert tickets stayed the same. His income increased while the prices of theater and concert tickets stayed the same. The prices of both theater and concert tickets decreased while his income stayed the same. Based on Lorenzo's consumption…arrow_forward
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