Question

Suppose there are only two goods, good X and a composite good. A rational consumer with a weekly income of $100 consumed 5 units of good X when the price of good X is $10 per unit. Suppose now the price of good X has decreased to $5 per unit.

Draw the price-consumption curve (PCC) of this consumer assuming good X is a price-elastic good. Add a brief explanation about the shape of your PCC (that is, why it is horizonal line, or upward sloping or downward sloping).

Answer #1

Amy has income of $M and consumes only two goods: composite good
y with price $1 and chocolate (good x) that costs $px per unit. Her
util- ity function is U(x,y) = 2xy; and marginal utilities of
composite good y and chocolate are: MUy = 2x and MUx = 2y.
(a) State Amy’s optimization problem. What is the objective
function? What is a constraint?
(b) Draw the Amy’s budget constraint. Place chocolate on the
horizontal axis, and ”expenditure all other...

Complete parts 1 and 2:
Part 1:
Suppose the consumer believes that goods X and Y are perfect
substitutes with 5 units of X equivalent to 1 unit of Y. Which of
the following is correct?
Group of answer choices
the marginal rate of substitution is not well defined when
(X,Y)=(5,1)
the marginal utility of X is 5 and the marginal utility of Y is
1
the utility function is U(X,Y)=X+5Y
the utility function is U(X,Y)=5X+Y
Part 2:
Suppose the...

Suppose a consumer only consumes two goods. There is a price
drop of good 1 and the quantity demanded of good 1 increased from 5
unit to 20 unit, the substitution effect is 10 unit. Use a graph to
show the income effect and substitution effect for these two goods.
Label the direction of substitution effect and income effect and
calculate income effect.

A consumer consumes only two commodities, X and Y. Imagine this
consumer’s downward sloping demand curve for commodity X, with
price on vertical axis and quantity of X consumed on horizontal
axis. Imagine two points on this demand curve, with point B falling
to the right and lower than point A.
Question 9 options:
MRSxy is the same at A and B points
MRSxy is less at B than at A
B represents higher utility than A.
Both a) and...

Suppose that a consumer has a 10$ budget. The price of Good X is
$2 and the price of Good Y is $1. Which of the following bundles
would the consumer be able to purchase with a voucher for Good X of
$8 (The consumer may still have some of the cash or voucher left
unused)
a. X = 3. Y= 10
b. X = 5. Y= 10
c. X = 1. Y= 14
d. X = 6. Y= 6...

Suppose the government is attempting to discourage consumption of
two goods: good X and good Y. Good X has a very elastic demand and
good Y has a very inelastic demand. The government plans to
implement a tax on the suppliers of both goods. If the elasticity
of supply for both goods is perfectly elastic, which tax will be
more effective at reducing consumption and why?

Suppose there are two goods, X and
Y. The price of good X is $2 per unit and the price of
good Y is $3 per unit. A given consumer with an income
of $300 has the following utility function:
U(X,Y) = X0.8Y0.2
which yields
marginal utilities of:
MUX= 0.8X-0.2Y0.2
MUY= 0.2X0.8Y-0.8
a. What
is the equation for this consumer’s budget constraint in terms of X
and Y?
b. What
is the equation for this consumer’s marginal rate of substitution
(MRSXY)? Simplifyso you only have...

Suppose there are two goods, good X and good Y . Both goods are
available in arbitrary non-negative quantities; that is, the
consumption set is R2++. A typical consumption bundle is denoted
(x,y), where x is the quantity of good X and y is the quantity of
good Y .
A consumer, Alia, faces two constraints. First, she has a
limited amount of wealth, w > 0, to spend on the goods X and Y ,
and both of these...

Suppose the Utility function of the consumer is given by
U = x + 5y^3
Suppose the price of x is given by p x and the price of y is
given by p y and the budget income of the consumer is given by I.
Price of x, Price of y and Income are always strictly positive.
Assume interior solution.
a) Write the statement of the problem
b) Compute the parametric expressions of the equilibrium
quantity of x &...

Suppose the demand function for good X is estimated to be Qdx =
1000 – 25Px + 10Py + 100M, where Qdx is quantity demanded of X, Px
is the price of good X, Py is price of some other good Y, and M is
the average income of consumers. By examining this function, we can
say good X has a downward sloping demand curve, is a substitute
with good Y, and is a normal good.

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