Question

1. Show a consumer’s budget constraint and indifference curves for soda drinks and slices of pizza. Show the optimal consumption choice. If the price of soda drinks is $1.50 per can and the price of a slice of pizza is $2 per slice, what is the marginal rate of substitution at the optimum?

2. Suppose the income elasticity of demand for food is 0.5 and
the price elasticity of demand is −0.25. Suppose also that Mia
spends $10,000 a year on food, the price of food is $2, and that
her income is $35,000. **(10 pts)**

a. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food?

(Hint: *Because a large price change is involved, you should
assume that the price elasticity measures an arc elasticity, rather
than a point elasticity*.)

b. Suppose that Mia gets a tax rebate of $500 to ease the effect of the sales tax. What would her consumption of food be now?

3. You run a small business and would like to predict what will happen to the quantity demanded for your product if you raise your price. While you do not know the exact demand curve for your product, you do know that in the first year you charged $20 and sold 10,000 units and that in the second year you charged $24 and sold 9,000 units.

If you plan to raise your price by 20%, what would be a reasonable estimate of what will happen to quantity demanded in percentage terms? If you raise your price by 20%, will revenue increase or decrease?

4. James has 100 hours per week that he can devote to working or enjoying leisure. His hourly wage is $15, which he spends on consumption goods.

a. Show his budget constraint graphically (on the horizontal axis, plot hours of leisure, and on the vertical axis, plot consumption goods).

b. If he spends all of his time in leisure (100 hours), what is his spending on consumption goods?

c. If he spends all of his time working, what is his spending on consumption goods?

d. His optimum will occur where the highest possible indifference curve is tangent to the budget constraint. Show that on your previous graph.

e. If his wage increases, his budget constraint will shift outward. Will he supply more labor or less labor? Answer this question using a graph.

Answer #1

1. The graph show the budget constraint and IC curves.

The line AB shows the budget constraint of soda and pizza. Where the optimal point of production is where IC2 touches the budget line, as it provides the maximum utility attainable. Whereas, IC3 is unattainable and IC1 is attainable but not not reaching maximum utility.

Marginal rate of substitution(i.e also the slope of the budget
constraint) is, **
= 2.00/1.50 = 1.333**

1. Show a consumer’s budget constraint and indifference curves
for soda drinks and slices of pizza. Show the optimal consumption
choice. If the price of soda drinks is $1.50 per can and the price
of a slice of pizza is $2 per slice, what is the marginal rate of
substitution at the optimum?
2. Suppose the income elasticity of demand for food is 0.5 and
the price elasticity of demand is −0.25. Suppose also that Mia
spends $10,000 a year...

please answer this question in 300 words
Draw a budget constraint and indifference curves for two
goods-cheese and wine. Show
what happens to the budget constraint and the consumer’s optimum
when the there is an
increase in income tax by 10 percent.

1. A student has an income of $100 and
buys only 2 goods: pizza and books. A pizza costs $2 a slice and
books cost $10 each. At the student’s present level of consumption,
his marginal utility of pizza is 4 and his marginal utility of
books is 2.
At the current level of consumption, is the student maximizing
his level of utility given his budget constraint?
b. Draw a graph showing his current consumption
point using indifference curves...

Suppose a person's budget constraint is tangent to their
indifference curve. If that person’s income increases and there is
no change in the price of two goods, what will happen?

11.he indifference curve that is tangent to the budget
constraint on the Budget Constraint model shows the quantity of the
two goods that the consumer would maximize utility from their
consumption.
A.True.
B.False.
12.Susan, a student, budgets $20.00 for lunch for the week.
Susan can buy 4 burger meals if she buys zero taco meals. What is
the price of a burger meal for Susan?
A. $1.00
B. $2.00
C. $3.00
D. $4.00
E. $5.00
13. To determine the utility...

Suppose you have a Pizza and Beer budget of $60. The initial
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(2 points) Draw a budget line showing the different
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initial budget. (Hint: put pizza on the horizontal axis)
(2 points) Now suppose that the price of pizza drops to $10.
Draw the new budget line to show the new combinations of pizza and
beer...

Given is the Total Utility Function
along with Budget
Constraint:
Utility Function:
U (X, Y) =
X0.2Y0.3
Budget Constraint:
I = XPx + Y Py
What is the consumer’s marginal utility for X and for Y?
Suppose the price of X is equal to
4 and the price of Y equal to
6. What is the utility maximizing proportion of X
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If the total amount of money he is...

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Doug. This utility is given by the following utility function: U(C,
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student number and ln(C) denotes the natural logarithm of
consumption etc. Given this utility function, Bob’s marginal
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Suppose you have 24
hours per day that you can allocate between leisure and
working.
(i)
Draw the budget constraint between
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vertical when the wage rate is $40 per hour. Mark an optimum point
A that is meaningful. Draw a new budget constraint when the wage
rate falls to $30 per hour. Show a new optimum point B.
(ii)
On your indifference curve diagram,
decompose the effect of the...

At a price of $3 each, Dave (a typical New Yorker) drinks 200
44-ounce sodas each year. Concerned about burgeoning obesity, the
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each consumer a $100 check each year.
(a) What will happen to Dave’s consumption of soda? Show using
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