. Suppose the only two goods you purchase are X and Y. One day the price of X falls. Illustrate your old and new budget lines. Illustrate the substitution and income effects on your consumption of X assuming X is a normal good. Now do the same assuming X is an inferior good. (2 pts)
. Suppose the only two goods you purchase are X and Y. One day the price...
(38pts) Suppose a consumer spends all of her income on only two goods, z and y. Her preferences over these two goods are represented by the utility function u(r,y) min(, 4y). The price of good y is given to be S8. Her income and price of z are represented by m and ps, respectively. (a) (10 pts) Find the demand for good z as a function of m and pa. (b) (5 pts) Is good z ordinary or Giffen good?...
1a. Consider two goods: x and y where y is a numeraire good. Suppose that x is a normal good. Graphically derive the demand curve for good x based on the indifference curve framework by working out the optimal consumption choices when the price of good x falls. 1b. Rework 1a but now good x is an inferior good (but not a Giffen good).
Assume X and Y are economic goods. Plot X on the x axis and Y on the y axis using graph paper. Assume income is $50 and the price of X is $2.50 and the price of Y is $5.00. Draw the original budget line and show a utility maximizing interior equilibrium using an indifference curve. a. Draw a new budget line if the price of X falls to $2.00. Show using indifference curves the substitution and income effects if...
Jane commutes to work. She can either use public transport or her own car. Her indifference curves obey the four properties of indifference curves for ordinary goods 1. Draw Jane's budget line (BL,) with car travel on the vertical axis and public transport on the horizontal axis 2. Suppose that Jane consumes some of both goods. Explain how her optimal consumption bundle can be obtained. Then, draw an indifference curve that helps you illustrate that optimal consumption bundle represented by...
rick purchses two goods food and clothing 1. Rick purchases two goods, food and clothing. He has a diminishing marginal rate of substi- tution of food for clothing. Let z denote the amount of food consumed and y the amount of elothing. Suppose the price of food increases from P to P (> P). On a clearly labeled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the...
Question 2 A consumer purchases two goods, food (x) and clothing (y). He has the utility function U(X,Y) = XY, where X and Y denote amounts of X and Y consumed. Marginal utilities of X and Y are MUx = y and MUy = x. The consumer’s income is $72 per week and that the price of y is Py = $1 per unit and price of x is Px1 = $9 per unit. What are his initial quantities of X and...
a consumers income is $100. prices of goods X and Y are $1 per unit. suppose the consumer facing such prices chooses the bundle that includes 60 units of good Y. next, the price of good X increases to $2 per unit. the consumer's new choice involves a bundle with 40 units of good X. is X a normal good,an inferior good,or is there insufficient information to answer this question? explain using a graph and the concepts of income and...
Suppose an individual’s utility function for two goods X and Y is givenby U(X,Y) = X^(3/4)Y^(1/4) Denote the price of good X by Px, price of good Y by Py and the income of the consumer by I. a) (2 points) Write down the budget constraint for the individual. b) (4 points) Derive the marginal utilities of X and Y. c) (3 points) Derive the expression for the marginal rate of substitution of X for Y. Write down the tangency...
CHAPTER 4 Suppose the only goods you buy are wine and roses. a. Between Monday and Tuesday, the price of wine goes up (while your 7. income remains fixed). Draw a diagram, with wine on the horizontal axis and roses on the vertical, to illustrate how your budget line moves. Illustrate your optimum points on the two budget lines, labeling Monday's optimum M and Tuesday's optimum T b. On Wednesday, the price of wine returns to its Monday level, but...
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...