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I. Jack can buy two goods, chocolate and telephone calls. Suppose income is є10 and chocolate...
1. (a) Illustrate, using diagrams, the income and substitution effect of a price fall for a...
1. (a) Illustrate, using diagrams, the income and substitution effect of a price fall for a normal good. Suppose there are two goods, telephone calls and bread. Bread costs є1 per loaf and income is €5. Under the existing scheme that the telephone company offers, Joe incurs a fixed fee of 2 which entitles him to 10 free calls and any calls made in excess of 10 incurs a cost of 0.10 per call. Under this scheme Joe chooses to...
14. Suppose Jack has an income of $12 to buy two goods: sandwiches and sodas. The...
14. Suppose Jack has an income of $12 to buy two goods: sandwiches and sodas. The price of a bottle of soda is $1, and the price of a sandwich is $2. Draw Jack’s budget line (BL1) given his income is $12. (Measure sodas on the X-axis and sandwiches on the Y-axis.) Assume Jack’s utility function is U(x,y)=xy (x is the consumption amount of sodas and y is the consumption amount of sandwiches). Jack’s marginal utility of consuming sodas and...
l. A consumer has €100 of income to allocate between chocolate and soda. Chocolate costs per...
l. A consumer has €100 of income to allocate between chocolate and soda. Chocolate costs per unit. (a) Suppose when soda costs 4 per unit, the consumer chooses 20 sodas. Draw the budget constraint and indifference curve to represent this budget and choice. (You can assume that the indifferences curves are regular, ie convex to the origin.) Now the company introduces a deal whereby the price falls to є3.00 if the consumer buys more than 20 sodas. So if the...
Suppose a family spends their income on two things: education (S) and all other goods, (X)....
Suppose a family spends their income on two things: education (S) and all other goods, (X). The family earns $60,000 a year. A unit of education costs $10,000 and a unit of other goods costs $15,000. a) Write the equation for the family’s budget constraint. b) Draw the family’s budget constraint. Put education spending on the x-axis and spending on all other goods on the y-axis. c) The local government opens a public school, which offers $20,000 worth of education...
l. (a) "Utility maximization is achieved when the budget is allocated so that the marginal utility...
l. (a) "Utility maximization is achieved when the budget is allocated so that the marginal utility per euro of expenditure is the same for each good". Explain this statement. A consumer has є100 of income to allocate between bread and pizzas. Bread costs €1 per loaf. (b) Suppose when pizza costs €5 per unit, the consumer chooses 10 pizzas. Draw the budget constraint and the indifference curve to represent this budget and choice. Be specific about where the budget line...
Suppose that Jessica has income Y and has preferences over hamburgers and movie tickets. Her budget...
Suppose that Jessica has income Y and has preferences over hamburgers and movie tickets. Her budget constraint is: Y = Ph*h+Pm*m. Where Ph and Pm denote the price of hamburgers and movie tickets and h and m their quantity. Assume that Jessica's income is equal to $400 and that each hamburger costs $4 and each ticket costs $8. Draw the budget constraint as well as an indifference curve that satisfies the condition for utility maximization. Please fully label the graph....
Suppose Peggy consumes only two goods, gasoline and cigarettes. Her income is $120, the price of...
Suppose Peggy consumes only two goods, gasoline and cigarettes. Her income is $120, the price of cigarettes per pack is $4 and the price of gasoline per gallon is $2. Currently, she consumes 40 gallons of gas at optimal level. a) Sketch the following budget lines. Be sure to show how you calculated the slopes and end points. (Put gas on the X axis.). b) What is optimal level consumption of cigarettes for Peggy? Use an arbitrary convex indifference curve,...
1) You make $2,000 a month. You can spend this income on two goods: food, which...
1) You make $2,000 a month. You can spend this income on two goods: food, which costs $10 a unit; and "all other goods" which costs $5 a unit. a) Draw your budget constraint for a given month in a graph. Be sure to label all relevant points (y-intercept, x-intercept and slope) on the graph with their values. b) Shade in the area that you could possibly choose given your budget. Write a few sentences explaining why that area is...
4. Suppose that doctors’ visits cost $20, and consumers each have an income of $100. Consumers...
4. Suppose that doctors’ visits cost $20, and consumers each have an income of $100. Consumers spend all their income on doctors’ visits and a “composite good” that costs $1 per unit. (3 points each) a. Draw a graph to illustrate a consumer’s budget constraint. Put doctors’ visits on the horizontal axis, and be sure to illustrate the horizontal and vertical intercepts. (You can assume that doctors’ visits are perfectly divisible.) b. Suppose the local government is considering two health...
Suppose you have 24 hours per day that you can allocate between leisure and working (i)...
Suppose you have 24 hours per day that you can allocate between leisure and working (i) Draw the budget constraint between “leisure hours” on the horizontal axis and “wage income” on the vertical when the wage rate is $40 per hour. Mark an optimum point A that is meaningful. Draw a new budget constraint when the wage rate falls to $30 per hour. Show a new optimum point B. (ii) On your indifference curve diagram, decompose the effect of the...
1. (a) Illustrate, using diagrams, the income and substitution effect of a price fall for a normal good. Suppose there are two goods, telephone calls and bread. Bread costs є1 per loaf and income is €5. Under the existing scheme that the telephone company offers, Joe incurs a fixed fee of 2 which entitles him to 10 free calls and any calls made in excess of 10 incurs a cost of 0.10 per call. Under this scheme Joe chooses to...
l. A consumer has €100 of income to allocate between chocolate and soda. Chocolate costs per unit. (a) Suppose when soda costs 4 per unit, the consumer chooses 20 sodas. Draw the budget constraint and indifference curve to represent this budget and choice. (You can assume that the indifferences curves are regular, ie convex to the origin.) Now the company introduces a deal whereby the price falls to є3.00 if the consumer buys more than 20 sodas. So if the...
l. (a) "Utility maximization is achieved when the budget is allocated so that the marginal utility per euro of expenditure is the same for each good". Explain this statement. A consumer has є100 of income to allocate between bread and pizzas. Bread costs €1 per loaf. (b) Suppose when pizza costs €5 per unit, the consumer chooses 10 pizzas. Draw the budget constraint and the indifference curve to represent this budget and choice. Be specific about where the budget line...
1) You make $2,000 a month. You can spend this income on two goods: food, which costs $10 a unit; and "all other goods" which costs $5 a unit. a) Draw your budget constraint for a given month in a graph. Be sure to label all relevant points (y-intercept, x-intercept and slope) on the graph with their values. b) Shade in the area that you could possibly choose given your budget. Write a few sentences explaining why that area is...
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