Substitution and income effect
consumer has a following utility function: U(X,Y)=X^2 • Y, price of X increased. We can cunclude that:
A)it's possible that substitution effect= real income effect on x
B) HICKS substitution effect < SLUTZKY substitution effect in absolute values
C)the real income effect= subsituion effect on Y
D) none of the above
Homework Answers
QUESTION 2 Find the Marginal Rate of Substitution (MRSxy) of a consumer with preferences described by...
QUESTION 2 Find the Marginal Rate of Substitution (MRSxy) of a consumer with preferences described by U(x, y) = ln(2x + y). c. MRSxy=0.5 MRSxy=2 MRSxy = ? MRSxy = 2x+y None of the above 1 QUESTION 3 A consumer has preferences represented by utility function U(x, y) = x+y. The initial prices are Px = 1 and Py = 2, while initial income is 12. Find the income effect associated with an increase in the price of x to...
Given a utility function U(x,y) = xy. The price of x is Px, while the price of y is Py. The income is I. Suppose at period 0, Px = Py = $1 and income = $8. At period 1, price of x (Px) is changed to $4. Compute the price effect, substitution effect, and
Given a utility function U(x,y) = xy. The price of x is Px, while the price of y is Py. The income is I. Suppose at period 0, Px = Py = $1 and income = $8. At period 1, price of x (Px) is changed to $4. Compute the price effect, substitution effect, and income effect for good x from the price change.
Utility function is ? = x + 2y. (a) Does ‘income effect’ exist? (b) Does ‘substitution...
Utility function is ? = x + 2y. (a) Does ‘income effect’ exist? (b) Does ‘substitution effect’ exist? Now utility function changes to ? = min[?, ?]. (c) Does ‘income effect’ exist? (d) Does ‘substitution effect’ exist?
Suppose James derives utility from two goods {x,y}, characterised by the following utility function: $u(x, y)...
Suppose James derives utility from two goods {x,y},
characterised by the following utility function: $u(x, y) =
2sqrt{x} + y$: his wealth is w = 10 let py = 1:
(a) What is his optimal basket if px = 0.50? What is her
utility?
(b) What is his optimal basket and utility if px = 0.20?
(c) Find the substitution effect and the income
effect associated with the price change.
(d) What is the change in consumer
surplus?
Suppose Linda...
4) Substitution effect The Slutsky equation decomposes a change in consumption caused by a price change (income effect and substitution effect). Find the substitution effect of a price change in...
4) Substitution effect The Slutsky equation decomposes a change in consumption caused by a price change (income effect and substitution effect). Find the substitution effect of a price change in the following cases: a) -0.7, 1.4 and budget share (b) 0.2 b) --0.9, e, - 0.8 and U -x, x,
4) Substitution effect The Slutsky equation decomposes a change in consumption caused by a price change (income effect and substitution effect). Find the substitution effect of a price change in...
A.O B. 24 C. 40 D. 60 The demand curve for the new computer game, Rock...
A.O B. 24 C. 40 D. 60 The demand curve for the new computer game, Rock and Roll Trivia, is given as follows: Q = 250 - 5P-0.1P. - 0.5P+0.2A-21 where P is the price of the game, P. is the price of a computer, P is the price of a diskette. A is the level of advertising, and Q is the level of income. Suppose P = 10. P. = 100. P. = 2. A = 5, and I...
Suppose that a consumer’s utility function is U=xy with MUx=y and MUy=x. Suppose the consumer‘s income...
Suppose that a consumer’s utility function is U=xy with MUx=y and MUy=x. Suppose the consumer‘s income is $480. For this question you may need to use the following approximations: sqrt(2) is approximately 1.4, sqrt(3) is approx. 1.7 and sqrt(5) is approx 2.2. a) Initially, the price of y is $4 and the price of x is $6. What is the consumer’s optimal bundle? b) What is the consumer's initial utility? Now suppose that price of x increases to $8 and...
Bnnas O al UI IImelioRO0d T0l DClla! Eplalli. 2. Suppose that a consumer has utility U(X,...
Bnnas O al UI IImelioRO0d T0l DClla! Eplalli. 2. Suppose that a consumer has utility U(X, Y) goods X and Y a) The prices of X and Y are S1 and $2 per unit respectively. Use a Lagrangian to solve for the optimal basket of goods. b) Suppose that the price of X increases to $2 per unit. Use a Lagrangian to solve for the new optimal basket of goods. Find the total effect of the price change on the...
Show the substitution effect, income effect, and total effect from a price increase using the equivalent...
Show the substitution effect, income effect, and total effect from a price increase using the equivalent variation approach In the figure, the individual is initially maximizing utility at bundle eq on budget line L' on indifference curve l. Then the price of good X increases, pivoting the budget line to L. The consumer maximizes utility at the new prices at bundle e2 on indifference curve l 2 1.) Using the line drawing tool, draw a new budget line representing the...
Suppose a consumer’s utility function is given by U(X,Y) = X*Y. Also, the consumer has $180...
Suppose a consumer’s utility function is given by U(X,Y) = X*Y. Also, the consumer has $180 to spend, and the price of X, PX = 4.50, and the price of Y, PY = 2 a. How much X and Y should the consumer purchase in order to maximize her utility? b. How much total utility does the consumer receive? c. Now suppose PX decreases to 2. What is the new bundle of X and Y that the consumer will demand?...
QUESTION 2 Find the Marginal Rate of Substitution (MRSxy) of a consumer with preferences described by U(x, y) = ln(2x + y). c. MRSxy=0.5 MRSxy=2 MRSxy = ? MRSxy = 2x+y None of the above 1 QUESTION 3 A consumer has preferences represented by utility function U(x, y) = x+y. The initial prices are Px = 1 and Py = 2, while initial income is 12. Find the income effect associated with an increase in the price of x to...
Suppose James derives utility from two goods {x,y},
characterised by the following utility function: $u(x, y) =
2sqrt{x} + y$: his wealth is w = 10 let py = 1:
(a) What is his optimal basket if px = 0.50? What is her
utility?
(b) What is his optimal basket and utility if px = 0.20?
(c) Find the substitution effect and the income
effect associated with the price change.
(d) What is the change in consumer
surplus?
Suppose Linda...
4) Substitution effect The Slutsky equation decomposes a change in consumption caused by a price change (income effect and substitution effect). Find the substitution effect of a price change in the following cases: a) -0.7, 1.4 and budget share (b) 0.2 b) --0.9, e, - 0.8 and U -x, x,
4) Substitution effect The Slutsky equation decomposes a change in consumption caused by a price change (income effect and substitution effect). Find the substitution effect of a price change in...
A.O B. 24 C. 40 D. 60 The demand curve for the new computer game, Rock and Roll Trivia, is given as follows: Q = 250 - 5P-0.1P. - 0.5P+0.2A-21 where P is the price of the game, P. is the price of a computer, P is the price of a diskette. A is the level of advertising, and Q is the level of income. Suppose P = 10. P. = 100. P. = 2. A = 5, and I...
Bnnas O al UI IImelioRO0d T0l DClla! Eplalli. 2. Suppose that a consumer has utility U(X, Y) goods X and Y a) The prices of X and Y are S1 and $2 per unit respectively. Use a Lagrangian to solve for the optimal basket of goods. b) Suppose that the price of X increases to $2 per unit. Use a Lagrangian to solve for the new optimal basket of goods. Find the total effect of the price change on the...
Show the substitution effect, income effect, and total effect from a price increase using the equivalent variation approach In the figure, the individual is initially maximizing utility at bundle eq on budget line L' on indifference curve l. Then the price of good X increases, pivoting the budget line to L. The consumer maximizes utility at the new prices at bundle e2 on indifference curve l 2 1.) Using the line drawing tool, draw a new budget line representing the...
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