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Show the substitution effect, income effect, and total effect from a price increase using the equivalent...
Until 2012, California, Texas, and Pennsylvania required firms to collect sales taxes for online sales if the chain had a physical presence (a "brick" store as opposed to a "click" store) in those states. Thus, those states collected taxes on Best Buy's online sales, because it had stores in each of those states, but they did not collect taxes from Amazon.com because it did not have physical locations in those states. Starting in 2012, Amazon had to pay taxes in...
An individual consumes two goods, clothing and food. Given the information below, illustrate the income-consumption curve. Clothing Price $8.00 $8.00 $8.00 Food Price $8.00 $8.00 $8.00 Clothing Food Income 100 100 $1,600 200 200 $3,200 300 300 $4,800 1.) Using the line drawing tool, first draw a budget line when income is $1,600. Label this line 21 2.) Using the point drawing tool, add the corresponding satisfaction-maximizing bundle. Label this point 'A'. Carefully follow the instructions above, and only draw...
1. (a) Outline the income and substitution effect of a price rise for an inferior good. Under what circumstances will the demand curve slope downwards for an inferior good. Illustrate using a diagram. (b) (c) Bob views apples and oranges as perfect substitutes in his consumption, and MRS 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget...
Catherine has a monthly income of $500, which she spends on pizzas and a composite of all other goods, the price of a pizza is $5. 2. Catherine has a monthly income of $500, which she spends on pizzas and a composite of all other goods. The price of a pizza is $5 a. Draw Catherine's budget constraint. Label your values of the intercepts and the slope of the budget constraint. (Place pizza on the horizontal axis) b. Assume Catherine...
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...
Concept: Derive Individual Demand Curve Barry consumes tacos and pepsi. The price of tacos is initially $2.00 per taco and the price of pepsi is $2.00 per can and Barry has $16.00 to spend. The marginal utility that each good yields is illustrated in the table below, along with the marginal utility per dollar spent on each good at these prices 10 MU Tacos MUT PT Pepsi MUp PP 1 10 5 1 10 5 MU What is Barry's demand...
The figure to the right shows Jill's budget constraint and her utility maximizing bundle (point R). What happens to her optimum if her income increases by 25%? 1.) Use the line drawing tool to show the new budget line. Label this line 'L 2.. 2.) Use the point drawing tool to locate a new consumer optimum if good Y is an inferior good. Label this point 'T'. 25- 24- 23- 22- 21- 20- 19- 18- 17- 16- 15- 14- 13-...
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...
Suppose that price for Compact Disks (CDs) is $15 each. Suppose the price for downloading tracks of music legally is $1 for each song. Suppose Sophia has $30 to spend each month on music. Draw the budget constraint on a graph with CDs on the horizontal axis. (1 points) Suppose the price of CDs falls to $10. Draw the new budget line. (1 point) Show using indifference curves the beginning and ending utility maximizing choices and the substitution and income...
Suppose the initial price of good 1 is $2 and the initial price of good 2 is $4 and initial income is $100. A consumer maximizes utility selecting an initial consumption bundle (pt R) and a new consumption bundle (pt S) given a change in an exogenous variable. Baseline Budget: B New Budget : B2 Units of Good 2 (31 = 75,x) = 37.5) u2 = 53.03 (21= 25,= 12.5) B U = 17.7 © 20 40 60 80 100...