Question

a. What is your marginal rate of substitution of $1 for $5 bills? b. Produce an...

a. What is your marginal rate of substitution of $1 for $5 bills?

b. Produce an indifference curve graph for your preferences over these two goods. Make sure you label your graph very carefully and precisely.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans a.) When you give up one $5 bill, you need 5 $1 bills to compensate for it . So you can take 5 $1 bills as a perfect substitute for 1 $5 bill therefore your MRS= 5.

MRS is negative and Negative MRS means the consumption of one product increases and another decreases.

Hence the answer is -5 or -1/5,
depending on which good you put on the horizontal axis. The answer will be -5 if you put 1$ bills on the vertical axis and will be -1/5 if you put 1$ bills on horizontal axis.

Ans b.) Please refer to the image uploaded for indifference curve graph.

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
what is the principle of the marginal rate of substitution (MRS)? draw a set of indifference...
what is the principle of the marginal rate of substitution (MRS)? draw a set of indifference curve for which MRS is constant between two products; MRS is zero how do we obtain the demand curve using indifference curve analysis explain using indifference curve analysis show and explain the income effect and substitution effect due to price change of a product (assume a price fall of product on the X-ais) Briefly explain engle curve for inferior superior and normal goods where...
1.True or False On a given indifference curve, the marginal rate of substitution is always decreasing....
1.True or False On a given indifference curve, the marginal rate of substitution is always decreasing. (Explain your answer) 2 Common fallacies Why are these statements wrong? (a) Since consumers do not know about indifference curves or budget lines, they cannot choose the point on the budget line tangent to the highest possible indifference curve. (b) Inflation must reduce demand since prices are higher and goods are more expensive.
Suppose the utility function for a consumer is given by U = 5XY. X is the...
Suppose the utility function for a consumer is given by U = 5XY. X is the amount of Good X and Y is the amount of Good Y. a) Neatly sketch the utility function. [Ensure that you label the graph carefully and state any assumptions that you make in sketching the curve.] b) Does this utility function exhibit diminishing marginal utility? [Ensure that you explain your answer fully.] c) Calculate the marginal rate of substitution. [Ensure that you explain your...
Carefully explain the difference between the marginal rate of substitution and the marginal rate of transformation....
Carefully explain the difference between the marginal rate of substitution and the marginal rate of transformation. Be sure to explain the economic meaning of each of these terms. What value does each of them take? (Your answer should be in terms of marginal utility and/or prices.)
Assume there are only two goods: wine and cheese, and three different individuals, whose preferences can...
Assume there are only two goods: wine and cheese, and three different individuals, whose preferences can be described as follows: Bob likes both wine and cheese. He has a constant marginal rate of substitution (wine for cheese): he is always willing to give up 1 unit of wine for exactly 2 units of cheese. Jimmy demands specific proportions of wine and cheese: 1 part wine for every 3 parts cheese, and any wine or cheese in excess of that proportion...
Suppose there are 2 consumers, A and B. The utility functions of each consumer are given...
Suppose there are 2 consumers, A and B. The utility functions of each consumer are given by:UA(X, Y) =X^1/2 Y^1/2 UA(X, Y) = 3X+ 2Y The initial endowments are:W X/A= 10, W Y/A= 10, W X/B= 6, W Y/B= 6 a) Using graph the initial allocation (label it W) and draw the indifference curve for each consumer that runs through the initial allocation. Be sure to label your graph carefully and accurately. b) (4 points) What is the marginal rate...
1. Emily has preferences for two goods x, y while her marginal rate of substitution (MRS)...
1. Emily has preferences for two goods x, y while her marginal rate of substitution (MRS) between x and y is given by 3y/x. Her budget constraint is m ≥ pxx + pyy, where m = income and px, py are prices of x, y respectively. (a) Emily's expenditure on y (i.e., pyy) is 1/3 of her expenditure on x (i.e., pxx). Is this true Are x and y normal goods? (b) Andrew has different preferences: his marginal rate of...
Consider your tastes for $5 bills and $10 bills. Suppose that all you care about is...
Consider your tastes for $5 bills and $10 bills. Suppose that all you care about is how much money you have, but you don't care whether a par- ticular amount comes in more or fewer bills (and suppose that you could have partial $10 and $5 bills). (a) With the number of $5 bills on the horizontal axis and the number of $10 bills on the vertical, illustrate 3 indierence curves from your indierence map. Write down a utility function...
For an individual the marginal rate of substitution for good X and Y is constant and...
For an individual the marginal rate of substitution for good X and Y is constant and equal to 1 for all combinations of the two goods in his indifference map. The price of good X is $3 per unit and the price of good Y is $6 per unit. The individual has a total budget of $180. Determine the bundle of goods X and Y that maximize his utility.
What is the monotonicity assumption？ What is the marginal rate of substitution (what does it tell...
What is the monotonicity assumption？ What is the marginal rate of substitution (what does it tell you) and how can you see it on a graph?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT