QUESTION 2 400 350 Y 300 250 B4 200 150 100 50 0 B3 0 B1 1 B2 2 3 4 5 6 7 8 02. What could have caused a change in the budget line from B4 to B1? O(a) an increase in the prices of both goods (b) an increase in the total budget (c) an increase in the price of X (d) a decrease in the price of Y (e) none of the above X
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- While deriving consumer's equilibrium, what is given? (a) Income of the consumer (b) Price of the commodities (c) Both income and price (d) None of the above Qy|Which of the following goods is likely to provide both the largest total utility and the smallest marginal utility? (A) (B) (C) Computers (D) Spam (E) Air Plastic AutomobilesPROBLEM (2) A consumer has utility u(x,y) X y This time, I give you the marginal utilities (don't expect it in the midterm!) MUx = over bundles of food (x) and clothing (y). 1 and MUY x² (a) Does the consumer always prefer more food to less? (b) Does she exhibit diminishing marginal utility for food? (c) Does she exhibit diminishing MRS? (d) If she is indifferent between the bundles A = ( = = The more food she has, does she value food less relative to clothing? (That is, she is willing to give up fewer units of clothing for an additional unit of food) Circle: YES / NO Are her indifference curves bowed towards the origin? Circle: YES / NO ¹) and B = (¹,x), calculate x. , 3 4 1 y² (e) Does she value food -relative to clothing- the same at bundle A and B ? If not, at which bundle does she value food (relative to clothing) more? (f) Why should we not be worried about the fact that the utility function here always takes "negative values"? (g) (wait for the next class for us to cover utility…
- ADDED DISCUSSION WITH QUESTIONS TOPIC: MARGINAL UTILITY 5 6 7 No. of Pieces Total Utility (Q) 1 2 3 4 (TU) 150 225 250 220 8 9 10 11 Marginal Utility is calculated using the formula given below 12 Marginal Utility (TU-TU)/(Q-Q) 13 14 D For 1 Piece For 2 Piece For 3d Piece (86-0)/(A6-0) -(87-86)/(A7-A6) 150 75 (88-87)/(AS-A7) 25 Marginal 15 Utility Formula 16 Marginal Utility 17 For 1st Piece of the Cake Marginal Utility1 = (150-0)/(1-0) Marginal Utility1 = 150 For 4th Piece (89-88)/(AS-AS) -30 For 2nd Piece of the Cake Marginal Utility2=(225-150)/(2-1) Marginal Utility2 = 75 For 3rd Piece of the Cake Marginal Utility3 = (250-225)/(3-2) Marginal Utility3 = 25 For 4th Piece of the Cake Marginal Utility4 = (220-250) / (4-3) Marginal Utility4 = -30 Therefore, here we can see how the marginal utility of a piece of cake declines after the consumption of the previous one. Here, the highest utility is reached at the consumption of the 3rd piece, beyond whichthe total declined. This is a…Quantity of Cheese Cakes (slices per day) Total Utility (TU) Marginal Utility (MU) 1 20 2 36 3 48 4 55 5 50 i) After how many slices do you get bored of Cheese cakes? ii) After how many slices do you feel sick?Suppose that a consumer has the indifference map shown above. The relevant budget line is LZ. The price of good X is $20.(a) What is the consumer’s income? Please show your calculations.(b) What is the price of good Y? Please show your calculations.(c) What is the slope of the budget line LZ. (d) What point in the graph will lead to utility maximizing with the budget line LZ and the indifference curves as shown above? Please label the point C. (e) What is the marginal rate of substitution (slope of the indifference curve) at the utility maximizing point you have shown in (d)?(f) Please explain why the consumer will not choose point A or point B.
- Consider an economy with two goods, consumption c and leisure 1, and a representative consumer. The consumer is endowed with 24 hours of time in a day. A consumer's daily leisure hours are equal to 1 = 24-h where h is the number of hours a day the consumer chooses to work. The price of consumption p is equal to 1 and the consumer's hourly wage is w. The consumer faces an ad valorem tax on their earnings of 7 percent. The con- sumer also receives some exogenous income Y that does not depend on how many hours she works (e.g. an inheritance). The consumer's preferences over consumption and hours of work can be represented by the utility function U(c, h) = c-3h¹+, where 3 > 0 and p > 0 are parameters. 1+p(A) The unit in which the utility is calculated is ________ (B) Utility measures __________ of the consumerConsider the utility function U(x, y) = x^4 + y^2 (a) What happens to the marginal utility of x as y increases? (b) What happens to the marginal utility of x as x increases? (c) Solve for MRSx,y and test whether or not it is diminishing (d) What type of special utility function is this?
- Please no written by hand Budget Selections to Build Demand As a commuter you have a budget of $250 to spend on gasoline each month. You drive a car that gets 20 miles per gallon (MPG). You can purchase 100 gallons of gasoline per month at the current price of $2.50 per gallon. Demand Schedule Price Quantity Commuting Errands Mp Social Activities Vacations $2.50 97.5 Drive Alone (700 miles) Small Trips as Needed (550 miles) Trips to City (350 miles) Out-of-State (350 miles) $3.00 Current price: $3.00/gallon Car Pool (425 miles) 2x per week (300 miles) Trips to Local Park (120 miles) In-State (200 miles) Add to schedule Previous $3.50 Public Transportation (60 miles) Next 1 Trip per Week (150 miles) Stay in Neighborhood (40 miles) > Stay-cation (50 miles) $4.00 QUANTITY 35 27.5 17.5 17.5 97.5 gallons Keynote $4.50 COST $105.00 $82.50 $52.50 $52.50 $292.50 of $250Consumer's surplus is the highest in the case of- (A) Necessities (B) Comforts (C) Luxuries (D) Conventional necessities 1 to IA (C to 35 oubongBudget Constraints, Utility, Indifference Curves and Differences in Preferences: Type of Good? Income Elasticities? Wate 60 New budget constraint 60 40 40 (3, 28) X (7, 32) z(9, 26) 20 Y. (7, 12) 20 Original budget constraint (7,12) Original budget constraint 0. 10 15 0. 5. 10 15 Rental Movies Rental Movies (b) Natasha's reaction to more income (a) Manuel's reaction to more income YouTube Q 1:37/7:17 MacBook! sunBo Yogurts