Question

2. Answer true, false, or it depends. Explain your answer using indifference curve analysis for a, b, and e, and using the formula for price elasticity of demand for (c) and (d).

a- Suppose that X and Y are perfect substitutes,
MRS_{xy} = 3, P_{x} = $4, P_{y} = $2, and I
= $10. Then, the consumer will spend all her income on good Y,
purchasing 5 units.

b- For an inferior good, the substitution and income effects work in the same direction if the price increases but in opposite directions if the price decreases.

c- For two parallel demand curves, the one further to the right has a smaller price elasticity at each price.

d- When two demand curves intersect, the flatter of the two is more elastic at the point of intersection.

e- In a world with only 2 goods, X and Y, it is not possible for both goods to be inferior.

Answer #1

Question 1
The following are key characteristics of Indifference Curves,
EXCEPT:
A. Each indifference curve identifies the combinations of X and
Y where the consumer is equaly happy.
B. Indifference curves are convex to the origin because X and Y
are assumed to be close substitutes.
C. For any combination of X and Y there is one and only one
Indifference Curve.
D. Indifference curves cannot logically cross between them if
preferences are well defined.
Question 2
The following are...

Suppose that the demand function for good x is given by
x = 10 - 2px + py + 0.5M, where
M=10 is income and px = 2 and py =
5.
(a) Calculate the own price elasticity of demand.
(b) Calculate the cross price elasticity of demand. Are the
goods substitutes or complements?
(c) Is the good normal or inferior? Calculate the income
elasticity of demand.
(d) Is the good a necessity or a luxury?

A consumer has typically shaped indifference curves and budget
constraint and is currently spending all her income. She is
consuming a bundle of goods such that her MRSXY is greater than PX
/PY . This consumer could increase her utility by:
a. consuming more of good X and less of good Y
b. consuming more of good Y and less of good X
c. neither of the above because we can tell she is already
maximizing utility because she is...

Suppose the demand curve for good X is of the form:
qx=1000 + I – 50px -20py. Suppose,
px=$10, py=$10, and income (I)=$100.
1)
Cross price elasticity of demand between X and Y = -1/2, and X
and Y are complements.
2)
Cross price elasticity of demand between X and Y = 1/2, and X
and Y are complements.
3)
Cross price elasticity of demand between X and Y = -1/2, and X
and Y are substitutes.
4)
Cross price...

7. Identify and explain, whether good X is a normal good or an
inferior good; an ordinary good or a Giffen good; a substitute or a
complement for good Y, if the demand for good X is described by the
demand function X (Px; Py; M) = (M – Px + 5Py). 8. Explain, what
exactly is meant by income elasticity of demand and show, how is it
calculated. 9. What does the income elasticity coefficient εM=0.5
imply? Provide exact...

Suppose demand is given Qxd = 50 - 4 Px + 6Py + Ax, where Px
=$4, Py =$2 and Ax = 50.
(a) What is the quantity demanded of good X? Please show your
calculations.
(b) what is the own price elasticity of demand (point
elasticity) when Px = $4? Is demand elastic or inelastic at this
price? Please explain.
(c) What is the cross price elasticity of demand between good X
and good Y when Px = $4...

The demand curve for potatoes is given by:
QX = 1,000 +0.3I - 300 PX + 200 PY,where QX = Annual demand in
pounds
I = Average income in dollars per year
PX = price of potatoes per pound,
PY = price of rice per pound.
(a) (1) Discuss whether potato is a normal good or an inferior
good.
(b) (1) Suppose I = $10,000: What would be market demand for
potatoes?
(1) Determine whether X and Y are substitutes...

Suppose demand is given by Q xd = 50 −
4Px + 6Py + Ax,
where Px = $4, Py = $2, and Ax
= $50.
(a) What is the quantity demanded of good x? Please show your
calculations.
(b) What is the own price elasticity of demand (point elasticity)
when PX = $4? Is demand elastic
or inelastic at this price? Please explain.
(c) What is the cross price elasticity of demand between good X
and good Y when...

Question 6 The demand for good x is given by x ∗ = 60 − 4Px + 2M
+ Py, where Px is the price of good x, Py is the price of good y,
and M is income. Find the own-price elasticity of demand for good x
when Px = 20, Py = 20, and M = 100. Is x an ordinary or giffen
good? Explain.
Question 7 The demand for good x is given by x ∗ =...

Dan’s preferences are such that left shoes (good x) and right
shoes (good y) are perfect complements. Specifically, his
preferences are represented by the utility function U (x, y) =
minimum{x, y}.
(a) Draw several of Dan’s indifference curves. Which bundles are
at the “kink- points” of these curves?
(b) Assume that Dan’s budget for shoes is M = 10 and that the
price of a right shoe is py = 2. Find and draw Dan’s demand curve
for left...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 15 minutes ago

asked 23 minutes ago

asked 28 minutes ago

asked 34 minutes ago

asked 45 minutes ago

asked 46 minutes ago

asked 55 minutes ago

asked 55 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago