Question

If an individual only consumes goods X and Y and is currently maximizing her total benefits, which of the following must be true?

A. The "equal bang for the buck" rule is adhered to.

B. MB Subscript Upper X divided by Upper P Subscript Upper X equals MB Subscript Upper Y divided by Upper P Subscript Upper YMBX/PX = MBY/PY.

C. The marginal benefits per dollar spent are the same for both goods. D. No other consumption choice can make total benefits greater.

E. All of the above.

Answer #1

Answer: E

**All of the options are true.**

A) This is the equal marginal utility per price rule. Marginal utility is difference of total utility between the two consecutive units.

B) This is the mathematical expression of the above rule; here the marginal utility is termed as marginal benefit: (MBx / Px) = (MBy / Py). Price of x is Px, the price of y is Py.

C) This is the theoretical approach of the above rule.

D) Since this is the scenario of maximizing benefit, no other choice could be better.

E) Therefore, all the options become true.

Consider an individual who consumes only two goods, ? and ?. She
cannot borrow money and does not save money. Her Marshallian demand
functions are ?* = 0.8(M/Px) and ?* = 0.57(M/Py) , where ?x and ?y
are the prices of goods ? and ? respectively and ? is her income.
Determine whether this set of demand functions is valid.

2. An individual consumes products X and Y and spends $25. The
pries of the two goods are $3 per unit of X and $2 per unit of Y.
The consumer in this case has a utility function expressed as:
U(X,Y)=0.5XY MUX=0.5Y MUY=0.5X
Draw the indifference curve for this consumer at
U=20. (2 pts)
Does this consumer’s preference exhibit diminishing
MRS? (1
pt)
Express the budget equation
mathematically. (2pts)
Determine the values of X and Y that will maximize utility in
the consumption of X...

You are a consumer who consumes goods X (education) and goods Y
(recreation), where the price of good X is PX and the price of Y is
Py. Your income that can be allocated to purchase these two items
is M.
Question
a. What happens if the price of education rises? Describe the
substitution effect and the income effect.
b. Derive the demand curve for education.

1.Suppose that an individual consumes only two goods. What will
happen to the individual if her last dollar spent on one good
yields more marginal utility than that from another good?
2.Suppose a family purchases 10,000 gallons of water a year at
20 cents a gallon and one diamond ring at a price of $1,000. Can we
conclude that the diamond ring provides more utility to the family
than water? Explain.

A consumer's preferences are given by the utility function
u=(107)^2+2(x-5)y and the restrictions x>5 and y>0 are
imposed.
1. Write out the Lagrangian function to solve the consumer's
choice problem. Use the Lagrangian to derive the first order
conditions for the consumer's utility maximizing choice problem.
Consider only interior solutions. Show your work.
2. Derive the Optimal consumption bundles x*(px,py,w) and
y*(px,py,w)
3. Use the first order condition from 1 to calculate the
consumer's marginal utility of income when w=200,...

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...

Ron consumes two goods, X and Y. His utility function is given
by U(X,Y) = 44XY. The price of X is $11 a unit; the price of Y is
$8 a unit; and Ron has $352 to spend on X and Y.
a. Provide the equation for Ron’s budget line. (Your answer for
the budget line should be in the form Y = a – bX, with specific
numerical values given for a and b.)
b. Provide the numerical value...

1a) According to Cardinal utility
theory, at the utility maximizing equilibrium combination for two
goods, X and Y, which of the following must be TRUE?
The marginal utility per dollar spent on X will exceed the
marginal utility per dollar
spent on Y.
The total expenditure will be the same for each good.
The marginal utility per dollar from X equals the marginal
utility per dollar from Y.
The marginal utility will be the same for each good.
1B) In...

Let us suppose that a person consumes only goods X and Y, and
his utility is given by the function:U (X, Y) = √(X.Y)a. Find the
marginal rate of substitution of X for Y. (Note: MRS = MUx/ MUy and
MUx = ∂U/∂X, MUy = ∂U/∂Y) (point 1)b. If the price of X is $1.50
and that of Y is $3.0, and the person has $30 to spend on these
goods, find the value of X and Y that maximize...

Assume that Andy consumes two goods X and Y.
His total utility (assumed measurable) of each good is independent
of the rate of consumption of other goods. The prices of X
and Y are, respectively, $5 and $10.
Units of the Good
Total Utility of X
Total Utility of Y
1
2
3
4
5
6
7
8
50
95
135
170
200
225
245
260
400
750
950
1100
1220
1320
1400
1450
a. If Andy is given $65...

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