Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 6.A, Problem 1P
To determine
Violation of the basic assumptions in the indifference curve.
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Jane receives utility from days spent traveling on vacation domestically (D) and days spent traveling on vacation in a
foreign country (F), as given by the utility function U(D,F)= 10DF. In addition, the price of a day spent traveling
domestically is $100, the price of a day spent traveling in a foreign country is $400, and Jane's annual travel budget is
$4000.
An indifference curve associated with a level of utility equal to 800 and an indifference curve associated with utility of
1200 are illustrated in the figure to the right.
Using the line drawing tool, graph Jane's budget line. Label this line L,.
Carefully follow the instructions above, and only draw the required object.
Can Jane afford any of the bundles that give her a utility of 800?
Can Jane afford any of the utility bundles that give her a utility of 1200?
Find Jane's utility-maximizing choice of days spent traveling domestically and days spent in a foreign country.
days of domestic travel and days of foreign travel. (Enter…
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QUESTION: Use the sheet 1( picture below) utility function and parameter values to find the optimal solution via analytical methods (calculus/lagrangean/algebra). Show your work. Note that x1<a/b, so we will use the first utility function given in the yellow box in the sheet.
What do you think is more realistic approach between cardinal and ordinal approaches to consumer behavior? Explain why.
Chapter 6 Solutions
Principles of Economics (12th Edition)
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- Text: Consider a consumer whose preferences are characterized by the utility function u(x1, X2) = In x1 + x2. This utility function is often used to represent the tastes of a consumer to whom good 1 is essential, while good 2 is not. Furthermore, the tastes represented by this utility function satisfy the five standard assumptions about tastes introduced in the lectures. Based on this information, answer the following questions Questions: Which of the following maps of indifference curves could be the one associated with the utility function above? X2 X2 b darrow_forwardUsing graphical analysis show how the following demand curves can be derived from indifference curve approach to understanding consumer behavior: What are the main assumptions for each of these demand curves? a) Marshallian demand curve b)Hicksian demand curvearrow_forward: submit your pdf for part. X + u/courses/124336/quizzes/156962/take Question 1 Calculate the marginal rate of substitution (MRS12) for the following utility function: U(91, 92) = 74√9₁ +0.6(92)² What is the value of MRS12 at bundle (9, 3)? Please round your final answer to two decimal places if necessary.arrow_forward
- Henry's utility function is u(x,y)=max{x+3y,3x+y}. (a) Suppose Henry's current consumption bundle is (2,1.5), what is his current utility level? If he consumes the bundle (1.5,2), will his utility change from the current utility level?arrow_forwardNext Question A utility function is given as U= MB Q 45- where B represents the quantity of books consumed and M represents magazines. This utility is shown via indifference curves in the diagram to the right. (Round all numeric responses to two decimal places.) 40- 35- E 30- The level of utility at point A is 25- The marginal utility of books at point A is 20- 15- 10- 5- 0- 10 15 40 45 20 25 30 Books (B) 35 50 Reactions 27 étv MacBook Air 80 DII DD F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 @ 2$ & 4 7 9 Q W E R T Y U S D F G J K L V N ion command command option * 00 Magazines (M) B # 3 **arrow_forwardHello!Could you please help me with this question. The marking scheme says that option A is the right answer. How? Since MU is diminishing at 5 units of biscuits.Question paper: 9708_32 2019. Thank you!arrow_forward
- Suppose Ed's utility from the consumption of martinis (m) is proportional to the number he drinks: U(m) = m. Further, Ed is particular about his martinis: He enjoys them in exactly three parts of gin (g) to one part vermouth (v). So we can write the utility as: U(m) = U (g, v) = min (g, 3v). (a) Provide a sketch of Ed's indifference curve in the (g, v)-space for various level of utility. (a) Let the prices be p, and p, and Ed's income be I. Find the demand functions for 9 and v [Hint: Use the proportional rule and budget constraint. No need for differential calculus] (b) Using the results in (b), what is Ed's indirect utility function? (c) Find the expenditure function; given a level of utility U, and prices pg and Pv.arrow_forwardAnswer the following questions using the following information. Columns 1 and 2 in the table below show the marginal utility that Cody gets by purchasing products A and B. Column 3 shows the marginal utility Cody gets from saving Assume that the price of A is $13 the price of B is $10, and Cody has an income of $129. a) Find the following series of MU/$ for each column. Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places Column 1 Column 2 Column 3 Units of A MU MU/S Units of B MU MU/$ Number of $ saved MU MU/S 68 6.8 1 80 6.15 1. 13 0. 2 71 5.46 2 63 6.3 2 10 0. 3 66 5.08 3 56 5.6 3 7 4 61 4.69 4. 46 46 0. 54 4.15 40 4 45 3.46 31 3.1 6. 1 39 3 22 2.2 0. 29 2.23 8 17 1.7 8 b) What quantities of A and B will Cody purchase in maximizing his utility? Quantity of A: 0 Quantity of B: 0 c) How many dollars will Cody save? Dollars Saved = $0 SAVE AND CLOSEarrow_forward(2) Graph the following given these two goods and their respective prices: books (units with per week) at price Ph=1; and food (units per week) at price Pƒ= 2: (a) Point A (market basket A) that maximizes satisfaction of a consumer. (b) Point B (market basket B) that is affordable but satisfaction is not maximized. (c) Point C (market basket C) that gives a higher level of satisfaction but not affordable.arrow_forward
- What is the maximum price Sam would be willing to pay to buy a coffee mug? What is the minimum price Sam would be willing to accept to sell a coffee mug he already owned?arrow_forwardHello!Could you please let me know why is the answer A in the marking scheme. Shouldn't it be option C as MU starts to diminish.Question paper: 9708_32 2019. Thank you!arrow_forwardU.S. food markets consumers viewed beef as a normal good from 1960-1976, but viewed it as an inferior good after that point. This type of change is not abnormal, in that as average household incomes rise, preferences might change. For instance, as households move from poor to middle-class, their consumption of beef might increase. However, as households move from middle- class to upper-middle-class, they might choose to purchase more exotic foods products. Assuming you are a beef producer in 1983, what will happen if incomes continue to increase? a. The marginal cost of beef will increase. b. The marginal cost of beef will decrease. c. The demand for beef will increase. d. The demand for beef will decrease.arrow_forward
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