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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Question
Chapter 6.A, Problem 2P
To determine
Plot the price change in household’s demand curve.
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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?
Sally consumes two goods, X and Y. Her utility function is given by the expression U = 2XY3. The current market price for X is $20, while the market price for Y is $10. Sally's current income is $500.
a. Write the equation for Sally's budget constraint. What is the slope of her budget line?
b. Determine the X,Y combination which maximizes Sally's utility, given her budget constraint.
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.
Chapter 6 Solutions
Principles of Economics (12th Edition)
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