Question

Suppose U(x)=x^{0.5}

a. Graph this utility function.

b. Suppose you have a binary lottery with a 40% chance of $25 and a
60% chance of $100. Draw

the probability tree of this lottery.

c. Show the lottery in Part B on your graph from Part A. You need
to show: U(25), U(100), EV,

U(EV), EU, U(CE) and the CE. Be sure to label everything
clearly.

d. What can you say about the CE and EV for this lottery? Why?

Answer #1

Suppose U(X)=15+X.
a. Graph this utility function
b. Suppose you have a binary lottery with a 40% chance of $0 and a
60% chance of $100. Draw
the probability tree of this lottery.
c. Show the lottery in Part B on your graph from Part A. You need
to show: U(0), U(100), EV,
U(EV), EU, U(CE) and the CE. Be sure to label everything
clearly.
d. What can you say about the CE and EV for this lottery? Why?

3. Suppose U(X)=15+X.
Hint: See the Risk Graph notes posted in Moodle
a. Graph this utility function
b. Suppose you have a binary lottery with a 40% chance of $0 and
a 60% chance of $100. Draw the probability tree of this
lottery.
c. Show the lottery in Part B on your graph from Part A. You
need to show: U(0), U(100), EV, U(EV), EU, U(CE) and the CE. Be
sure to label everything clearly. **If the TA cannot read...

Suppose the utility function for a consumer is given by U =
5XY.
X is the amount of Good X and Y is the amount of Good Y.
a) Neatly sketch the utility function. [Ensure that you
label the graph carefully and state any assumptions that you make
in sketching the curve.]
b) Does this utility function exhibit diminishing marginal
utility? [Ensure that you explain your answer fully.]
c) Calculate the marginal rate of substitution. [Ensure that
you explain your...

Suppose Bernadette has a utility function resulting in an MRS =
Y / X (from U = √XY) and she has an income of $80 (i.e. M = 80).
Suppose she faces the following prices, PX = 6 and
PY = 5. If the price of good Y goes up to PY
= 6, while everything else remains the same, find Bernadette’s
equivalent variation (EV).
The answer is EV = - 6.97, please show your work.

Suppose the utility function for goods ?? and ?? is given by:
u(x, y) = x0.5 y0.5 a) Explain the difference between compensated
(Hicksian) and uncompensated (Marshallian) demand functions. b)
Calculate the uncompensated (Marshallian) demand function for ??,
and describe how the demand curve for ?? is shifted by changes in
income , and by changes in the price of the other good. c)
Calculate the total expenditure function for ??.

. Suppose utility is given by the following function:
u(x, y) = min(2x, 3y) Suppose Px = 4, Py =
6, and m = 24.
Use this information to answer the following questions:
(a) What is the no-waste condition for this individual?
(b) Draw a map of indifference curves for these preferences. Be
sure to label your axes, include the no-waste line, and draw at
least three indifference curves.
(c) Given prices and income, what is the utility-maximizing
bundle of...

7.
Suppose you have the following utility function for two
goods:
u(x1, x2) = x
1/3
1 x
2/3
2
. Suppose your initial income is I, and prices are p1 and
p2.
(a) Suppose I = 400, p1 = 2.5, and p2 = 5. Solve for the
optimal bundle. Graph the budget
constraint with x1 on the horizontal axis, and the
indifference curve for that bundle.
Label all relevant points
(b) Suppose I = 600, p1 = 2.5, and...

Suppose that Ken cares only about bathing suits (B) and
flip-flops (F). His utility function is U = B^0.75*F^0.25. The
price of bathing suits are $12, and the price of flip-flops are $6.
Ken has a budget of $240.
(a) (4 points) Draw and label a graph containing Ken’s budget
line with bathing suits (B) on the x-axis and flip-flops (F) on the
y-axis. Graph the x and y intercepts and determine the slope of the
budget line.
(b) (4...

Suppose you are endowed with with a utility function over wealth
given by: u(w) = 7w + 100. Further, suppose you are offered a
gamble that pays $10 with probability 30% and $100 with probability
70%. (A) What is the expected value of this gamble? (B) Would you
rather have the gamble, or a guaranteed $70? (C) Now suppose your
utility function is u(w) = 100w − 18. How does your answer in (B)
change? (D) Suppose the utility function...

[In all cases in which you are asked to illustrate with a graph,
be sure to draw it carefully and clearly label all curves and
axes.]
1. C = 160 + .6YD = 160 + .6(Y – T)
I = 150
G = 150
T = 100
a) Solve for (in order): Y, YD, and C. Show your work. Calculate
Z and confirm that Z = Y.
b) Draw the goods market equilibrium that corresponds to this
solution. Carefully label...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 13 minutes ago

asked 51 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago