Question

Joy has utility function ?(?, ?) and she is currently spending all of her income on positive (non-zero) amounts of goods ? and ?. ?? = 12 and ?? = 10. At Joy’s current consumption bundle ??(?,?) ?? = 21 and ??(?,?) ?? = 7.

2a. Use indifference curves and budget constraints to illustrate Joy’s current situation. Calculate all slopes and show them in your diagram.

2b. Assume that one unit of ? is a small amount. How much ? is Joy willing to give up to obtain one more unit of ? ? How much ? does Joy have to give up (in the marketplace) to obtain one more unit of ? ? Is Joy better or worse off if she gives up ? to obtain one more unit of ? ? How much? So what should Joy do ?

2c. There is not enough information for you to calculate Joys optimal bundle, but you should show it on your diagram (for 2a) with budget constraints and indifference curves. If Joy is at her optimal bundle, how much ? is she willing to give up to obtain one more unit of ? ?

2d. Starting from her current consumption bundle, calculate Joy’s marginal utility of income if: • she spends one more dollar of her income on ? • she spends one more dollar of her income on ? Comment on the difference between the value of dollars spent on ? versus the value of dollars spent on ? at her current consumption bundle and why she should alter her consumption bundle.

Answer #1

Joy is spending all her money on apples and berries. The price
of apples are $8 each and the price of berries are $4 each. It
takes joy 3 minutes to consume apples and 1 minute to consume
berries. Joy’s time is worth $2 per minute. For Joy, the marginal
utility from the last units consumed for apples is 40 and it is 20
for berries. For Joy, she A. should consume less of apples B. is
consuming apples and...

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...

If at the current consumption bundle where all income is spent,
the slope of the indifference curve at this bundle is steeper than
the slope of the budget line, and X is on the horizontal axis
a. the consumer is willing to give up more of good Y to get an
additional unit of good X than is necessary under the current
market prices.
b. MRS < PX /PY.
c. MRS = - PX /PY.
d. the consumer is willing...

Rachel spends her income between two goods: good x and good y.
Her utility function is given by u(x,y) = min{x,y}. The prices of
both goods are P0 = 2 and P0 = 2. Her income
2xy
isM0 =12.
(a) Compute Rachel’s optimal bundle and call it (x0, y0).
(b) Obtain the utility level associated with the optimal bundle
(x0, y0) in (a). Call the utility level u0. (1 mark)
Now, suppose that prices change but Rachel’s income remains the...

[Utility Maximization] Mary spends her income on housing (H) and
food (F). Her utility function is given by: U(H, F) = 3HF − H + F
Suppose the price of food is $1 per unit and the price of housing
is $2 per unit. Assume her income is $9.
a) Write down Mary’s budget constraint and find the expression
for her marginal rate of substitution (MRS(HF)).
b) Assume the optimal choice of (H*,F*) is not a corner
solution. Write the...

Julie has preferences for food, f, and clothing, c, described by
a Cobb-Douglas utility function u(f, c) = f · c. Her marginal
utilities are MUf = c and MUc = f. Suppose that food costs $1 a
unit and that clothing costs $2 a unit. Julie has $12 to spend on
food and clothing.
a. Sketch Julie’s indifference curves corresponding to utility
levels U¯ = 12, U¯ = 18, and U¯ = 24. Using the graph (no algebra
yet!),...

Cleopatra spends all her money on bags (B) and shoes (S). Her
utility function is U(B, S) = 2B0.5S 0.5 . Her income is $150.
Price of shoes is pS = 2. Price of bags depends on the number of
bags purchased. Bags cost $5 each if she purchases between 1 and 8
bags. If she purchases more than 8 bags, the price falls to $2 for
all subsequent books.
(a) Draw Kleopatra's budget constraint where bag is on the...

7. MRS and utility maximization Rina lives in Dallas and loves
to eat desserts. She spends her entire weekly allowance on pudding
and pie. A bowl of pudding is priced at $1.00, and a piece of
pumpkin pie is priced at $4.00. At her current consumption point,
Rina's marginal rate of substitution (MRS) of pudding for pie is 3.
This means that Rina is willing to trade three bowls of pudding per
week for one piece of pie per week....

3. Nora enjoys fish (F) and chips(C). Her utility function is
U(C, F) = 2CF. Her income is B per month. The price of fish is
PF and the price of chips is PC. Place fish
on the horizontal axis and chips on the vertical axis in the
diagrams involving indifference curves and budget lines.
(a) What is the equation for Nora’s budget line?
(b) The marginal utility of fish is MUF = 2C and the
Marginal utility of chips...

Evelyn eats only apples and bananas. Suppose Evelyn has the
following utility function: ?(??, ??) = ????.
a. Evelyn currently has 40 apples and 5 bananas. What is
Evelyn’s utility at this bundle? Graph the indifference curve
showing all bundles that Evelyn likes exactly as well as the bundle
(40, 5).
b. Norah offers to trade Evelyn 15 bananas if she will give her
25 apples. Would Evelyn take this trade? Explain.
c. What is the largest number of apples...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 11 minutes ago

asked 25 minutes ago

asked 48 minutes ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago