Question

In the context of consumer utility maximization in a two good world where initially the best...

In the context of consumer utility maximization in a two good world where initially the best point for the consumer is to take some amount of both good x and good y, answer the following.

1) what happens to the level of consumer utility if the price of x falls?

2) what happens to the level of consumer utility if consumer income rises?

3) what happens to the level of consumer utility if both the price of good x and the price of good y double and consumer income doubles?

Homework Answers

Answer #1

1) When price of x falls then consumer is able to purchase more good x with same level of income. This increases consumer utility as consumer is able to buy more good.

2) Increase in consumer income means purchasing power of consumer increases which enable him to buy more of good x and y. This enable consumer to consume bundle lie on higher indifference curve. So, level of consumer utility rises.

3) When price of both goods and income doubles then utility of consumer remains same as now also, consumer is able to purchase same units of goods because real income does not increases.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1a) According to Cardinal utility theory, at the utility maximizing equilibrium combination for two goods, X...
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...
Question 4. Suppose there is a consumer that is trying to solve the following utility maximization...
Question 4. Suppose there is a consumer that is trying to solve the following utility maximization problem where px =20 , py = 10, and m=100: Max x,y 10 − (x−5) 2 − (y−10) 2 s.t. pxx+ pyy≤ m (a) Use the Lagrangian method to solve the above utility maximization problem. That is, jump straight to setting up the Lagrangian and solving. (8 points) (b) Are the demands you solved for in part a the utility maximizing values for x...
Construct a utility function for a car-tire scenario where by a consumer derives satisfaction for every...
Construct a utility function for a car-tire scenario where by a consumer derives satisfaction for every group of 1 car and 4 tires. Now suppose cars cost x and tires cost y each. If a consumer has income M, solve the utility maximization problem facing the consumer.
A consumer derives utility from good X and Y according to the following utility function: U(X,...
A consumer derives utility from good X and Y according to the following utility function: U(X, Y) = X^(3/4)Y^(1/4) The price of good X is $15 while good Y is priced $10. The consumer’s budget is $160. What is the utility maximizing bundle for the consumer? .
Consider a consumer with Cobb-Douglas preferences over two goods, x and y described by the utility...
Consider a consumer with Cobb-Douglas preferences over two goods, x and y described by the utility function u(x, y) = 1/3ln(x) + 2/3n(y) 1. Assume the prices of the two goods are initially both $10, and her income is $1000. Obtain the consumer’s demands for x and y. 2. If the price of good x increases to $20, what is the impact on her demand for good x? 3. Decompose this change into the substitution effect, and the income effect....
Claraís utility function is u (x; y) = (x + 2) (y + 1) where x...
Claraís utility function is u (x; y) = (x + 2) (y + 1) where x is her consumption of good x and y is her consumption of good y. (a) Write an equation for Claraís indi§erence curve that goes through the point (x; y) = (2; 8). (b) Suppose that the price of each good is $1 and Clara has an income of $11. Can Clara achieve a utility level of at least 36 with this budget? ( c)...
You are a consumer who consumes goods X (education) and goods Y (recreation), where the price...
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.
Consider a consumer with a utility function U = x2/3y1/3, where x and y are the...
Consider a consumer with a utility function U = x2/3y1/3, where x and y are the quantities of each of the two goods consumed. A consumer faces prices for x of $2 and y of $1, and is currently consuming 10 units of good X and 30 units of good Y with all available income. What can we say about this consumption bundle? Group of answer choices a.The consumption bundle is not optimal; the consumer could increase their utility by...
) A consumer's utility function is given by: U(x,y) = 10xy Currently, the prices of goods...
) A consumer's utility function is given by: U(x,y) = 10xy Currently, the prices of goods x and y are $3 and $5, respectively, and the consumer's income is $150 . a. Find the MRS for this consumer for any given bundle (x,y) . b. Find the optimal consumption bundle for this consumer. c. Suppose the price of good x doubles. How much income is required so that the Econ 201 Beomsoo Kim Spring 2018 consumer is able to purchase...
Consider a consumer with the utility function u(x,y) = √x +y Suppose the cost producing good...
Consider a consumer with the utility function u(x,y) = √x +y Suppose the cost producing good x is given by the cost function c(x) and the price of good y is $ Illustrate that the solution to the social planner’s problem in terms of production of x is equivalent to the perfectly competitive market outcome. (You may assume that the consumer is endowed with an income of M>0)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT