Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 3, Problem 17E
To determine
Laspeyres Index and ideal cost of living index.
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Fang likes playing badminton with her friends. Her utility function for playing badminton every week is given by
U(t) = 11t – 2t2,
where t is measured in hours. They play on a badminton court, which they can rent per hour. Suppose the current price to play on the badminton court is £2.50 per hour.
How many hours should Fang play if she wishes to maximise her utility?
Explain what we mean by the principle of diminishing marginal utility. Does the principle apply in Fang’s case? Explain why.
In a diagram with income in pound sterling on the horizontal axis and quantity on the vertical axis, show the relationship between Fang’s budget and the number of hours that would maximise her consumer surplus.
Adam's Utility at Optimal Consumption Bundle Given Adam's utility function U = 4x0.8y 0.2 And the optimal
consumption bundle found previously (X= 40, Y = 30), substitute these values into the utility function. U = 4 \times
400.8 \times 300.2 U = 4 \times 19.127 \times 300.2 U = 76.5 \times 1.97 U = 151 Adam's utility at his optimal
consumption bundle is 151. C. The Lagrange multiplier at the optimal consumption bundle can be interpreted as the
marginal utility of income, or how much additional utility Adam would gain from an additional unit of currency. From the
Lagrange multiplier method, dL = 3.2X-0.20.2 - 451 = 0 dt = 0.8x087-08-151 = 0 Using equation 1, 3.2 \times
40-0.2 \times 300.2= 452 45= 3.2.40-0.2 300.2 452 = 32 = 0.067 d. Budget Constraint Line PX. X + PY. Y
= B With PX = £45, PY = £15, and B = £2,250, this becomes 45X + 15Y= 2,250. Set Y to 0 in the budget equation,
45X = 2250, X = 50. The X-intercept is at (50, 0). Set X to 0, 15Y = 2250, Y = 150. The Y-intercept is at (0,…
Maya is doing her undergrad at Queen's University. She loves donuts and chocolate chip cookies (CCC).
Her utility function is given by u(x, y) = √8x +5 + 2y, where x denotes her consumption of donuts and y denotes her consumption of
CCC. Her budget is $10/day. The price of a donut is $1.
(a) When the price of CCC is $1, what is Maya's optimal choice of donuts and CCC?
(b) When the price of CCC is $8, what is Maya's optimal choice of donuts and CCC?
(c) When the price of CCC increases from $1 to $8, calculate Maya's substitution effect and income effect.
(d) According to your calculation in part (c), is CCC a normal good or an inferior good? Explain. Is CCC an ordinary good or a Giffen good?
Explain.
Chapter 3 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
Ch. 3 - Prob. 1RQCh. 3 - Prob. 2RQCh. 3 - Prob. 3RQCh. 3 - Prob. 4RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Prob. 8RQCh. 3 - Prob. 9RQCh. 3 - Prob. 10RQ
Ch. 3 - Prob. 11RQCh. 3 - Prob. 12RQCh. 3 - Prob. 13RQCh. 3 - Prob. 1ECh. 3 - Prob. 2ECh. 3 - Prob. 3ECh. 3 - Prob. 4ECh. 3 - Prob. 5ECh. 3 - Prob. 6ECh. 3 - Prob. 7ECh. 3 - Prob. 8ECh. 3 - Prob. 9ECh. 3 - Prob. 10ECh. 3 - Prob. 11ECh. 3 - Prob. 12ECh. 3 - Prob. 13ECh. 3 - Prob. 14ECh. 3 - Prob. 15ECh. 3 - Prob. 16ECh. 3 - Prob. 17E
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