4. Draw indifference curves for two goods and y, where they are perfect substitutes.Specify each axis, show the direction utility is increasing using an arrow, explain themeaning of perfect substitutes, and provide some examples. (ch. 5).5 Draw indifference curves for two goods r and u where they are perfect complements

An indifference curve shows the various combinations of two goods that give the consumer equal…

Answered: Draw indifference curves for two goods…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 2CQQ

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Jerry spends his entire budget on bread and gasoline. His preferences are complete, transitive, monotonic, and convex. For Jerry, bread is an inferior good that follows the law of demand. Moreover, his cross-price elasticity of demand for gasoline with respect to the price of bread is negative. Suppose the price of bread increases, all else constant. a. Create a chart to show the total, income, and substitution effects on bread and gasoline of the increase in the price of bread. b. Use budget lines and indifference curves to graphically illustrate the three effects. Be sure to label each effect on your graph (or through the chart from part a) and plot bread on the x-axis and gasoline on the y-axis
7. 3.1. Explain, with the aid of examples, the following economic concepts in terms of utility theory: 3.1.1 Total utility 3.1.2 Marginal utility 3.1.3 Weighted marginal utility 3.2 Assess how income elasticity of demand is used to define goods and services.
8. Donald derives utility from only two goods, carrots (Qc) and donuts (Qd). His utilityfunction is as follows:U(Qc,Qd) = (Qc)(Qd)The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) aregiven as follows:MUc = Qd MUd = QcDonald has an income (I) of $120 and the price of carrots (Pc) and donuts (Pd) are both$1.a. What is Donald's budget line?b. What is Donald's income-consumption curve?c. What quantities of Qc and Qd will maximize Donald's utility?d. Holding Donald's income and Pd constant at $120 and $1 respectively, what is Donald'sdemand curve for carrots?e. Suppose that a tax of $1 per unit is levied on donuts. How will this alter Donald's utilitymaximizing market basket of goods?f. Suppose that, instead of the per unit tax in (e), a lump sum tax of the same dollar amountis levied on Donald. What is Donald's utility maximizing market basket?g. The taxes in (e) and (f) both collect exactly the same amount of revenue for thegovernment, which of the two taxes…

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Draw indifference curves for two goods r and y, where they are perfect substitutes. Specify each axis, show the direction utility is increasing using an arrow, explain the meaning of perfect substitutes, and provide some examples. (ch. 5).