EBK MICROECONOMICS
5th Edition
ISBN: 9781118883228
Author: David
Publisher: YUZU
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Question
Chapter 4, Problem 4.18P
To determine
Amount of cash required to make the consumer equally well off.
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Ellie spends £20 on Energy drink (E) and Juice (J). Her preferences for these goods can be described by the following utility function: U ( E,J) = 2E + J^2 ( J squared) - J (MUt = 2, MUj = 2J - 1) Suppose that one energy drink costs £1.60 while one carton of Ellie’s favourite Juice costs £4.00.
a) Find Ellie’s optimal consumption bundle. Provide both algebraic and graphical solution. Explain your reasoning.
b) Discuss how Ellie’s optimal consumption choice would change when her disposable budget changes.
c) If the price of energy drinks increases to £2.00 per can, how should the price of Juice change so that Ellie can be as well off as before this change in prices?
d) Discuss the implications of the price change from c) on Ellie’s optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Ellie’s demand for Energy drink and/or Juice.
John spends all his money on leather jackets and hats. John’s utility function is given by
U(x1, x2) = min{4x1,2x1+x2}
where x1is the consumption of leather jackets and x2 is the consumption of hats. Suppose that John is making an optimal choice, and he consumes at the point (x1= 15, x2= 10). Moreover, the price of leather jackets (per unit) is $10.
1. Graph the indifference curve that passes through the point (15,10).
2. What must be the price of hats?
3. What is john’s total income?
Pat divides a $900 monthly income between the consumption of food (X) and all else (Y). Pat’s preferences can be described by the following utility function: U = XY. a) If the price of food is $1, and of all else is $2, how much of each good will Pat choose? b) If now the price of food rises to $2, how much of each good will Pat choose? c) Explain this change in terms of income and substitution effects. d) How much would Pat be willing to pay to avoid this price increase?
Chapter 4 Solutions
EBK MICROECONOMICS
Ch. 4 - Prob. 1RECh. 4 - Prob. 2RECh. 4 - Prob. 3RECh. 4 - Prob. 4RECh. 4 - Prob. 5RECh. 4 - Prob. 6RECh. 4 - Prob. 7RECh. 4 - Prob. 8RECh. 4 - Prob. 9RECh. 4 - Prob. 10RE
Ch. 4 - Prob. 4.1PCh. 4 - Prob. 4.2PCh. 4 - Prob. 4.3PCh. 4 - Prob. 4.4PCh. 4 - Prob. 4.5PCh. 4 - Prob. 4.6PCh. 4 - Prob. 4.7PCh. 4 - Prob. 4.8PCh. 4 - Prob. 4.9PCh. 4 - Prob. 4.10PCh. 4 - Prob. 4.11PCh. 4 - Prob. 4.12PCh. 4 - Prob. 4.13PCh. 4 - Prob. 4.14PCh. 4 - Prob. 4.15PCh. 4 - Prob. 4.16PCh. 4 - Prob. 4.17PCh. 4 - Prob. 4.18PCh. 4 - Prob. 4.19PCh. 4 - Prob. 4.20PCh. 4 - Prob. 4.21PCh. 4 - Prob. 4.22PCh. 4 - Prob. 4.23PCh. 4 - Prob. 4.24PCh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Prob. 4.28PCh. 4 - Prob. 4.29PCh. 4 - Prob. 4.30P
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