Question

5 Explain what would happen to the equilibrium consumption of two goods, X and Y, if:

- Income doubled and all prices tripled, or;
- All prices doubled and income tripled, or;
- All prices and income doubled.

Assume that Goods X and Y are both normal goods. You are welcome to draw a graph for each outcome if you wish.

Answer #1

A.An increase in income shifts the budget line parallel to right and an increase in price of both goods shifts budget line to the left.An increase in income increases purchasing power and an increase in price reduces purchasing power.

But since the increase in price is greater than the increase in income,the budget line will shift to the left.The consumption of goods will fall.

B.In this case the rise in income is greater than the rise in price.Thus,budget line will shift to the right . Consumption of goods will ris

C.No change because increase in price=increase in income.

The original budget line is AB.

A shifts budget line from AB to A""A""

B shifts budget line from AB to A'B'

Suppose the government is attempting to discourage consumption of
two goods: good X and good Y. Good X has a very elastic demand and
good Y has a very inelastic demand. The government plans to
implement a tax on the suppliers of both goods. If the elasticity
of supply for both goods is perfectly elastic, which tax will be
more effective at reducing consumption and why?

Consider two goods, x and y. With the quantity of Y on the
vertical axis and the quantity of x on the horizontal axis, a
negatively sloped price- consumption curve implies that
A. x and y are inferior goods
B. x and y are normal goods
c. x and y are substitutes in consumption
d. x and y are complements in consumption

Suppose you consume two goods, X and Y. Suppose also: • Y is a
normal good. • When the price of X goes up, you increase your
consumption of Y. Illustrate the income and substitution effects on
your consumption of Y. Which effect is bigger? Justify your
answer.
please with a clear hand writing or typed
thank you

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...

Xavier considers lemonade (X) and iced tea (Y) to be normal
goods and has convex preferences.
a. (10 pts) Design an indifference curve-budget line diagram
showing the substitution and income effects
created when the price of lemonade increases. In your diagram,
place lemonade on the horizontal axis
and iced tea on the vertical axis. Identify the initial optimal
choice as (X*, Y*) and the optimal choice
after the price increase as (X**, Y**).
b. (4 pts) How can you tell...

Consider a student who purchases education (x) and other goods
(y). The student has preferences over these goods given by u(x, y)
= ln(x) + 3ln(y). The prices of education and other goods are,
respectively, px = 10 and py = 5, and the student’s income is I =
20.
A. Graph the budget constraint, IEP, optimal bundle (x ∗ , y∗ ),
and the indifference curve passing through the optimal consumption
bundle. Label all curves, axes, slopes, and intercepts....

In a two goods (x and y) world, two districts (A and B) are
identical, except the prices of good x (Px) and good y (Py) are
higher and lower in district A, respectively. Suppose two identical
individuals (i.e. same preferences and income) live in the two
districts separately and their optimal choices are interior
solutions. Evaluate the following statement: ‘The MRS at the
optimal choices of two individuals are the same’. True, false, or
uncertain? Explain your answer intuitively...

A consumer has the following utility function has two goods X
and Y: U (X, Y) = 20X + 80Y - X^2 - 2Y^2
Where X is his consumption of CDs with a price of $ 1 and Y his
consumption of films with a price of $ 2
A) Determine its consumption in X and Y according to its
income.
B) Determine its consumption in X and Y if its income is $
41.
C) What will be its...

Consider a consumer with the utility function U(x, y) = min(3x,
5y). The prices of the two goods are Px = $5 and Py = $10, and the
consumer’s income is $220. Illustrate the indifference curves then
determine and illustrate on the graph the optimum consumption
basket. Comment on the types of goods x and y represent and on the
optimum solution.

You are choosing between two goods, X and Y, and your marginal
utility from each is shown in the following table.
Units of X
MUx
Units of Y
MUy
1
20
1
16
2
16
2
14
3
12
3
12
4
8
4
10
5
6
5
8
6
4
6
6
Instructions: Enter your answers as a whole
number.
a. If your income is $9.00 and the prices of X and Y are $2.00
and $1.00, respectively, what...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 7 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 11 minutes ago

asked 11 minutes ago

asked 14 minutes ago

asked 17 minutes ago

asked 17 minutes ago

asked 17 minutes ago

asked 20 minutes ago