optimal consumption & budget constraint
Q1. A consumer chooses an optimal consumption point where the
A) marginal rate of substitution equals the relative price ratio.
B) slope of the indifference curve exceeds the slope of the budget constraint
C) ratios of all the marginal utilities are equal
D) All of the above are correct.
Q2. A budget constraint illustrates the
A) prices that a consumer chooses to pay for products he consumes.
B) consumption bundles that give a consumer equal satisfaction.
C) purchases made by consumers.
D) consumption bundles that a consumer can afford
Homework Answers
Answer to Q1: A) marginal rate of substitution equals the relative price ratio.
Explanation: because it enables you to get utility best possible in relation to price
Answer to Q2: D) consumption bundles that a consumer can afford.
Explanation: as budget constraints means limited money available which determine purchases.
Given the budget constraint in the diagram, which of the following statements is false? O Consumption...
Given the budget constraint in the diagram, which of the following statements is false? O Consumption bundles b and c yield the same level of utility, which is higher than the utility represented by bundle a. The consumer's optimal bundle could be bundle d, e, or f. Although the consumer receives the same level of utility from bundles d and e, she cannot afford to purchase bundled The consumer receives the same level of utility from consumption bundles d, e,...
budget constraint
When the indifference curve is tangent to the budget constraint,a.indifference curves are likely to intersect.b.a consumer cannot be made better off without an increase in her income or a price decrease in one of the goods she consumes.c.the consumer is likely to be at a sub-optimal level of consumption.d.income is at its optimum for a consumer.
Cat only buys tomatoes (x) and cucumbers (y) and her preferences can be identified with U(x,x)=6x2y....
Cat only buys tomatoes (x) and cucumbers (y) and her preferences can be identified with U(x,x)=6x2y. a. What is Cat's marginal utility for tomatoes, and what is her marginal utility for cucumbers? How does Cat's utility change when she consumes more tomatoes? How does her utility change when she consumes more cucumbers? b. Find Cat’s marginal rate of substitution (tomatoes are on the x axis and cucumbers on the y axis). What is the slope of Cat's indifference curve that...
Chapter 7 Vocabulary Name: Match the term with the correct definition Income effect a trying to...
Chapter 7 Vocabulary Name: Match the term with the correct definition Income effect a trying to get the biggest bang for the buck. Utility maximizing rule b as the price of a good drops, consumers have more money to spend on it and other goods Consumer equilibrium The amount of satisfaction gained from consumption of goods and services. d shows the combinations of two items that can be purchased with a limited amount of money. Law of diminishing marginal utility...
Explain why utility maximization subject to the budget constraint implies that the consumer purchases that basket...
Explain why utility maximization subject to the budget constraint implies that the consumer purchases that basket of commodities for which 1. all income is used up. 2. the marginal rate of substitution equals the price ratio. 3. the marginal utilities per dollar of the two goods are equal. If you use a diagram in your answer, make the diagram large and label all curves, axes, and points.
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...
2.3 Choice III Consider a consumer whose preference is represented by the utility function where A...
2.3 Choice III Consider a consumer whose preference is represented by the utility function where A 0 and B 0. a) What is the consumer's marginal rate of substitution? b) If the consumer has income m and faces prices p-A and p - B, what are her optimal bundles? (There may be one, or more than one.) Draw a graph that illustrates this situation, including the budget line and the relevant indifference curve(s). c) If the consumer has income m...
2. Ali has a $7 weekly budget that he spends on songs (S, SI per download)...
2. Ali has a $7 weekly budget that he spends on songs (S, SI per download) and prosein bars (B, S1 per bar). His usility information for the two products is below from songsof a song y fTotal utiliay Marginal wtilityQuantity ofTotal utility Marginal utility of a bar from bars protein bars 10 18 14 18 21 28 30 31 a) Calculate Ali's marginal utilities and finish the filling out the table b) If Ali spends his entire budget on...
Draw the consumer’s budget constraint and indicate the consumer’s optimal bundle on the budget constraint. Make...
Draw the consumer’s budget constraint and indicate the
consumer’s optimal bundle on the budget constraint. Make sure your
graph is accurate and clearly labeled.
c) U(X,Y) 2X +3Y. The consumer has $20 to spend and the prices of the goods are Px $2 and Py $4.
True, False, Uncertain or Not enough information: A given budget constraint has only one indifference curve...
True, False, Uncertain or Not enough information: A given budget constraint has only one indifference curve that is tangent for a specific set of prices. However, there may be numerous indifference curves that intersect the same budget constraint. Explain in terms of relative prices, opportunity costs and the marginal rate of substitution.
Given the budget constraint in the diagram, which of the following statements is false? O Consumption bundles b and c yield the same level of utility, which is higher than the utility represented by bundle a. The consumer's optimal bundle could be bundle d, e, or f. Although the consumer receives the same level of utility from bundles d and e, she cannot afford to purchase bundled The consumer receives the same level of utility from consumption bundles d, e,...
Cat only buys tomatoes (x) and cucumbers (y) and her preferences can be identified with U(x,x)=6x2y. a. What is Cat's marginal utility for tomatoes, and what is her marginal utility for cucumbers? How does Cat's utility change when she consumes more tomatoes? How does her utility change when she consumes more cucumbers? b. Find Cat’s marginal rate of substitution (tomatoes are on the x axis and cucumbers on the y axis). What is the slope of Cat's indifference curve that...
Chapter 7 Vocabulary Name: Match the term with the correct definition Income effect a trying to get the biggest bang for the buck. Utility maximizing rule b as the price of a good drops, consumers have more money to spend on it and other goods Consumer equilibrium The amount of satisfaction gained from consumption of goods and services. d shows the combinations of two items that can be purchased with a limited amount of money. Law of diminishing marginal utility...
2.3 Choice III Consider a consumer whose preference is represented by the utility function where A 0 and B 0. a) What is the consumer's marginal rate of substitution? b) If the consumer has income m and faces prices p-A and p - B, what are her optimal bundles? (There may be one, or more than one.) Draw a graph that illustrates this situation, including the budget line and the relevant indifference curve(s). c) If the consumer has income m...
2. Ali has a $7 weekly budget that he spends on songs (S, SI per download) and prosein bars (B, S1 per bar). His usility information for the two products is below from songsof a song y fTotal utiliay Marginal wtilityQuantity ofTotal utility Marginal utility of a bar from bars protein bars 10 18 14 18 21 28 30 31 a) Calculate Ali's marginal utilities and finish the filling out the table b) If Ali spends his entire budget on...
Draw the consumer’s budget constraint and indicate the
consumer’s optimal bundle on the budget constraint. Make sure your
graph is accurate and clearly labeled.
c) U(X,Y) 2X +3Y. The consumer has $20 to spend and the prices of the goods are Px $2 and Py $4.
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