Question

Assume that Sam has following utility function: U(x,y) = 2√x+y MRS=(x)^-1/2, px = 1/5, py =...

Assume that Sam has following utility function: U(x,y) = 2√x+y

MRS=(x)^-1/2, px = 1/5, py = 1 and her income I = 10. price increase for the good x from px = 1/5 to p0x = 1/2.

(a) Consider a price increase for the good x from px = 1/5 to p0x = 1/2. Find new optimal bundle under new price using a graph that shows the change in budget set and the change in optimal bundle when the price increases.

(b) Describe three different measures to evaluate welfare change from a price change.

(c) Following (a), show that these three measures are the same using a graph (or an algebra).

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Part a) graph

Red color IC: when original price

Blue: new IC after price change

Green colour BC: original price, equilibrium ( 25,5)

Purple colour, new BC, eqm :(4,8)

Part c) using algebra:

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Utility cobb douglas function = 2X.5Y2 MUx =Y2/X.5 MUy =4X.5Y Px=1 PY=2 and M=100 1.Graph the...
Utility cobb douglas function = 2X.5Y2 MUx =Y2/X.5 MUy =4X.5Y Px=1 PY=2 and M=100 1.Graph the consumer optimization problem in(X,Y) space. Clealy label the precise location of the optimal bundle, the budget constraintm, and the shape of the furthest obtainable indifference curve. 2.Assume Px increase to 2. What is the total effect of the price change in terms of X and Y. 3. What is the precise location of the bundle used to decompose the substitution and income effect? 4.What...
Homework Assignment 5 1. U = XY where MRS = Y/X; I = 1500, Px =...
Homework Assignment 5 1. U = XY where MRS = Y/X; I = 1500, Px = Py = 15, A. Derive optimal consumption bundle. B. If Px increases to be $30, derive the new optimal consumption bundle C. Using the results from A and B, derive the individual demand for good X assuming the demand is linear. 2. Assuming the market has two consumers for a very special GPU and their individual demands are given below Consumer A: P =...
Tamer derives utility from goods X and Y, according to the following utility function: U(X,Y)= 3...
Tamer derives utility from goods X and Y, according to the following utility function: U(X,Y)= 3 X radical y . His budget is $90 per period, the price of X is PX=$2, and the price of Y is PY=$6. 1. Graph the indifference curve when U= 36 2. What is the Tamer’s MRS between goods X and Y at the bundle (X=8 and Y=2 )? What does the value of MRS means? (أحسب القيمة واكتب بالكلمات ماذا تعني القيمة) 3....
Let income be I = $90, Px = $2, Py = $1, and utility U =...
Let income be I = $90, Px = $2, Py = $1, and utility U = 4X½Y. a.[12] Write down and simplify the two conditions required for utility maximization. b.[6] Compute the optimal consumption bundle for the consumer. What is the level of utility at the optimum?
Using the utility function U(x,y)=3x+y/2, px=7, py=1, and M=46 , what is the utility-maximizing demand for...
Using the utility function U(x,y)=3x+y/2, px=7, py=1, and M=46 , what is the utility-maximizing demand for y, y*?
Given the following utility function: U (X,Y) = 2X½ + Y and given that U =...
Given the following utility function: U (X,Y) = 2X½ + Y and given that U = 40 Part 1: Find Y1 for X = 4 Part 2: Find Y1 for X = 9 Part 3: Find Y1 for X = 16 Part 4: Find Y1 for X = 36 Part 5: Find Y1 for X = 49 Using graph paper construct the graph for indifference curve for U = 40 Given : Py = 20, Px = 5 and I...
Suppose Bernadette has a utility function resulting in an MRS = Y / X (from U...
Suppose Bernadette has a utility function resulting in an MRS = Y / X (from U = √XY) and she has an income of $80 (i.e. M = 80). Suppose she faces the following prices, PX = 6 and PY = 5. If the price of good Y goes up to PY = 6, while everything else remains the same, find Bernadette’s equivalent variation (EV). The answer is EV = - 6.97, please show your work.
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...
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,...
1. Suppose utility for a consumer over food(x) and clothing(y) is represented by u(x,y) = 915xy....
1. Suppose utility for a consumer over food(x) and clothing(y) is represented by u(x,y) = 915xy. Find the optimal values of x and y as a function of the prices px and py with an income level m. px and py are the prices of good x and y respectively. 2. Consider a utility function that represents preferences: u(x,y) = min{80x,40y} Find the optimal values of x and y as a function of the prices px and py with an...
Emily's preferences can be represented by u(x,y) = x1/2 y1/2 . Emily faces prices (px,py) =...
Emily's preferences can be represented by u(x,y) = x1/2 y1/2 . Emily faces prices (px,py) = (2,1) and her income is $60. (some formulas in chapter 5 might help) Her optimal consumption bundle is: ______________ (write in the form of (x,y) with no space) Now the price of x increases to $3 while price of y remains the same Her new optimal consumption bundle is: ______________  (write in the form of (x,y) with no space) Her Equivalent Variation is: $_______________ Her...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT