Question

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?

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.

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 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 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, 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 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
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 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 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 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 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

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 5 minutes ago

asked 11 minutes ago

asked 18 minutes ago

asked 44 minutes ago

asked 48 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago