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.
Explain why utility maximization subject to the budget constraint implies that the consumer purchases that basket...
Exuplin why utity masiznje to hc bdconsmer urdhuces that basket of commodities for which a. all income is used up. b. the marginal rate of substitution equals the price ratio. c. 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.
Exuplin why utity masiznje to hc bdconsmer urdhuces that basket of commodities for which a. all income is used up. b. the marginal rate of substitution equals the price ratio. c. 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.
Suppose that a consumer with an income of $1,000 finds that basket A maximizes utility subject to his budget constraint and realizes a level of utility U1. Why will this basket also minimize the consumer’s expenditures necessary to realize a level of utility U1?
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
f. (BONUS Solve the utility maximization problem in general (xỈ + subject to the budget constraint, pM + pr,-I max 2 x1,x2 Again, the marginal utility of good i is MU,-X1ới +均一; the marginal utility of good 2 is MU,-X2(xf + xj)--. Find the quantities of good i and good 2, x1 and X2, in terms of prices, p, and p2, and income I.
A consumer must maximize utility, U-f(x.y), subject to the constraint that she spends all her income, M on purchasing two goods x, v. The unit prices of the goods, px and py respectively, are market determined and hence exogenous. (i) State the objective function, constraint, and choice variables of this problem (3 marks) (ii) Obtain the Lagrangean for this problem, using λ to represent the Lagrange multiplier. (3 marks) (i) Obtain the first order conditions of this problem in terms...
The budget line A. Represents the set of all baskets that give the consumer the same level of utility while holdi spending constant B. Represents the set of all baskets the consumer can afford C. Represents the set of all baskets in which the consumer purchases only one of the goods. D. Represents the set of all baskets the consumer can afford while spending all available inconm QUESTION 2 Marginal utility A. Is the ratio of total utility to total...
The reality of consumer optimum means making choices in countless purchases in order to enjoy a roughly the same utility per dollar spent. b the same level of satisfaction in each. c the same standard of living. d increasing degrees of satisfaction. e a balanced budget. Utility is a balance between ________ and ________ factors. a good; bad b transitive; intransitive c economic; personal d capital; labor e production; consumption The rate at which a consumer is willing to purchase...
CV=Compensating Variation EV=Equivalent Variation 3. Utility maximization under constraint, substitution and income effect, CV and EV (20 points) Josh gets utility (satisfaction) from two goods, A and B, according to the utility function U(A,B) = 5A1/4B3/4. While Luke would like to consume as much as possible he is limited by his income. a. Maximize Josh's utility subject to the budget constraint using the Lagrangean method. b. Suppose PA increase. Show graphically the income, substitution effect and total effect and explain....
1. When a consumer maximizes utility, which of the following is NOT true? a. The indifference curve is tangent to the budget line b. Marginal utility per dollar is maximized c. The marginal rate of substitution is equal to the relative price d. The marginal utility per dollar spent is equal across all goods