Homework Answers
1.Income consumption curve for perfect substitutes is horizontal on the x axis and upward sloping for perfect complements.
Price consumption curve is upward sloping for substitutes as well as complements.
Answer-D
2.For deriving demand curve for good X we have to take into account the price of X and the quantity of X.
Answer-b
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23. Consider the above graph for goods x and y. Which of the following could possibiy...
Consider a graph on which one good Y is on the vertical axis and the only...
Consider a graph on which one good Y is on the vertical axis and the only other good X is on the horizontal axis. On this graph the income-consumption curve has a negative slope for low incomes, then it takes a zero slope for a higher income, and then it takes a positive slope for even higher incomes (the curve looks like a U-shape, first falling and then rising as income increases). This curve illustrates that: A) At low income...
2. Consider the Cobb-Douglas utility function u(x,y) = x2y2. Let the budget 1, where pr, py...
2. Consider the Cobb-Douglas utility function u(x,y) = x2y2. Let the budget 1, where pr, py are the prices and I denotes the constraint be prx + pyy income. (a) Write the Lagrangian for this utility maximization problem. (b) Solve the first-order conditions to find the demand functions for both good a and good y. [Hint: Your results should only depend on the pa- rameters pa, Py, I.] (c) In the optimal consumption bundle, how much money is spend on...
Good Y Good X The diagram above shows a budget constraint on Good X and Good...
Good Y Good X The diagram above shows a budget constraint on Good X and Good Y. Point A is the original optimal bundle. Suppose Good X is an inferior good and the price of Good Y increases, draw the new budget constraint. Would the income effect increase or decrease the consumption on Good Y? Would the substitution effect increase or decrease the consumption on Good Y? If the substitution effect is larger than the income effect, indicate the new...
1) (2 points) The above graph shows that A) x is normal and y is normal...
1) (2 points) The above graph shows that A) x is normal and y is normal B) x is normal and y is inferior C) x is inferior and y is normal D) x is inferior and y is inferior E) x has an upward sloping demand curve 2) (2 points) Which of the above graphs shows how the budget line changes when Good Y decreases in price? A) Graph A B) Graph B C) Graph D) Graph D
answer e and f only please Exercise 3. Slutsky (Quasilinear) The utility function is u =...
answer e and f only please
Exercise 3. Slutsky (Quasilinear) The utility function is u = x + xy, and the budget constraint is m=P,X, + P2XZ. a) Derive the optimal demand curve for good 1, x,(PP2), and good 2, x2(m, PP.). b) Looking at the cross price effects (@x_/ôp, and Ox_/ôp.) are goods x, and X, substitutes or complements? Looking at income effects (@x,lôm and Ox_lām) are goods x, and X, inferior, normal or neither? c) Assume m=100, =0.5...
2. Identifying normal, inferior, and Giffen goods The green line BC, on the following graph represents...
2. Identifying normal, inferior, and Giffen goods The green line BC, on the following graph represents your initial budget constraint for good X and good Y, and point A represents the optimal consumption choice, given this choice set. Suppose the price of good X dropped by 50%. The compensated budget is parallel to BC2, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (U) at point B. On the following...
Q1. Suppose consumer consumes two goods, X and Y. The price of X is P x...
Q1. Suppose consumer consumes two goods, X and Y. The price of X is P x , price of Y is P Y and the consumer income is m. a. Derive and interpret the budget constraint and its slope. b. If slope is -3, how will you interpret it? c. Suppose a government wants to discourage the excessive consumption of X and decides to impose a tax t 1 if someone consume more than X 1 but less than X...
Homework 3 Chapter 5: Demand 1. What happens to the amount of x and y consumed...
Homework 3 Chapter 5: Demand 1. What happens to the amount of x and y consumed when income falls if x and y are normal goods? Draw a budget constraint (before the income decrease) and a convex utility curve that corresponds to the optimal consumption bundle. Draw a new budget constraint (after income falls) and a new convex utility curve that corresponds to the optimal consumption bundle. Has the amount of x and y consumed increased or decreased due to...
The utility function is u = x1½ + x2, and the budget constraint is m =...
The utility function is u = x1½ + x2, and the budget constraint is m = p1x1 + p2x2. Derive the optimal demand curve for good 1, x1(p1, p2), and good 2, x2(m, p1, p2). Looking at the cross price effects (∂x1/∂p2 and ∂x2/∂p1) are goods x1 and x2 substitutes or complements? Looking at income effects (∂x1/∂m and ∂x2/∂m) are goods x1 and x2 inferior, normal or neither? Assume m=100, p1=0.5 and p2=1. Using the demand function you derived in...
A consumer buys two goods, good X and a composite good Y. The utility function is...
A consumer buys two goods, good X and a composite good Y. The utility function is given as U(X,Y) = In3XY. The price of X is Py, the price of Y is Py and Income is I. 1) Derive the demand equation for good X. ( 5 marks) 2) Are the two goods X and Y complements or substitutes? Why? ( 5 marks) 3) Suppose that I=$10 and suppose that initially the Px = $1 and subsequently Px falls and...
2. Consider the Cobb-Douglas utility function u(x,y) = x2y2. Let the budget 1, where pr, py are the prices and I denotes the constraint be prx + pyy income. (a) Write the Lagrangian for this utility maximization problem. (b) Solve the first-order conditions to find the demand functions for both good a and good y. [Hint: Your results should only depend on the pa- rameters pa, Py, I.] (c) In the optimal consumption bundle, how much money is spend on...
Good Y Good X The diagram above shows a budget constraint on Good X and Good Y. Point A is the original optimal bundle. Suppose Good X is an inferior good and the price of Good Y increases, draw the new budget constraint. Would the income effect increase or decrease the consumption on Good Y? Would the substitution effect increase or decrease the consumption on Good Y? If the substitution effect is larger than the income effect, indicate the new...
1) (2 points) The above graph shows that A) x is normal and y is normal B) x is normal and y is inferior C) x is inferior and y is normal D) x is inferior and y is inferior E) x has an upward sloping demand curve 2) (2 points) Which of the above graphs shows how the budget line changes when Good Y decreases in price? A) Graph A B) Graph B C) Graph D) Graph D
answer e and f only please
Exercise 3. Slutsky (Quasilinear) The utility function is u = x + xy, and the budget constraint is m=P,X, + P2XZ. a) Derive the optimal demand curve for good 1, x,(PP2), and good 2, x2(m, PP.). b) Looking at the cross price effects (@x_/ôp, and Ox_/ôp.) are goods x, and X, substitutes or complements? Looking at income effects (@x,lôm and Ox_lām) are goods x, and X, inferior, normal or neither? c) Assume m=100, =0.5...
2. Identifying normal, inferior, and Giffen goods The green line BC, on the following graph represents your initial budget constraint for good X and good Y, and point A represents the optimal consumption choice, given this choice set. Suppose the price of good X dropped by 50%. The compensated budget is parallel to BC2, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (U) at point B. On the following...
Homework 3 Chapter 5: Demand 1. What happens to the amount of x and y consumed when income falls if x and y are normal goods? Draw a budget constraint (before the income decrease) and a convex utility curve that corresponds to the optimal consumption bundle. Draw a new budget constraint (after income falls) and a new convex utility curve that corresponds to the optimal consumption bundle. Has the amount of x and y consumed increased or decreased due to...
A consumer buys two goods, good X and a composite good Y. The utility function is given as U(X,Y) = In3XY. The price of X is Py, the price of Y is Py and Income is I. 1) Derive the demand equation for good X. ( 5 marks) 2) Are the two goods X and Y complements or substitutes? Why? ( 5 marks) 3) Suppose that I=$10 and suppose that initially the Px = $1 and subsequently Px falls and...
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