Suppose your only source of income is work and that you are paid $20 per hour. This determines a budget constraint. You can buy free time at the expense of your income by working less. Likewise, you can get more income at the expense of your free time by working more. Suppose that you can choose how many hours you work. How do you decide exactly on which point of your budget constraint you will choose? Explain this by referring to your indifference curves.
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Suppose your only source of income is work and that you are paid $20 per hour. This determines a budget constraint. You can buy free time at the expense of your income by working less. Likewise, you can get more income at the expense of your free time by working more. Suppose that you can choose how many hours you work.
- How do you decide exactly on which point of your budget constraint you will choose? Explain this by referring to your indifference
curves.
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Solved in 2 steps with 1 images
- Consider a graph with paper on the x-axis and pencils on the y-axis. If income increases, then (select all that apply): Check All That Apply the budget constraint will become steeper (the absolute value of the slope will increase).the budget constraint will become steeper (the absolute value of the slope will increase). the budget constraint will become flatter (the absolute value of the slope will decrease). the budget constraint will become flatter (the absolute value of the slope will decrease). the slope of the budget constraint will not change.the slope of the budget constraint will not change. the x-intercept will increase.the x-intercept will increase. the x-intercept will decrease.the x-intercept will decrease. the x-intercept will not change.the x-intercept will not change. the y-intercept will increase.the y-intercept will increase. the y-intercept will decrease.the y-intercept will decrease. the y-intercept will not change.Consider a graph with paper on the x-axis and pencils on the y-axis. If the price of paper decreases, then (select all that apply): the budget constraint will become steeper (the absolute value of the slope will increase).the budget constraint will become steeper (the absolute value of the slope will increase). the budget constraint will become flatter (the absolute value of the slope will decrease). the budget constraint will become flatter (the absolute value of the slope will decrease). the slope of the budget constraint will not change.the slope of the budget constraint will not change. the x-intercept will increase.the x-intercept will increase. the x-intercept will decrease.Consider an indifference curve for someone deciding how to allocate time between work (and thus consumption) and leisure. Suppose the wage increases. The substitution effect induces a person to work and consume (more , less) ? in response to higher wages. If consumption is a normal good, the income effect induces the person to consume ( more, less) ? when the wage rises, but if consumption is an inferior good, the income effect induces the person to consume ( more , less) ? in response to higher wages. True or False: The person's consumption may fall as a result of the higher wage if consumption is an inferior good. True or False
- Consider a graph with paper on the x-axis and pencils on the y-axis. If the price of paper decreases, then (select all that apply): Check All That Apply the budget constraint will become steeper (the absolute value of the slope will increase).the budget constraint will become steeper (the absolute value of the slope will increase). the budget constraint will become flatter (the absolute value of the slope will decrease). the budget constraint will become flatter (the absolute value of the slope will decrease). the slope of the budget constraint will not change.the slope of the budget constraint will not change. the x-intercept will increase.the x-intercept will increase. the x-intercept will decrease.the x-intercept will decrease. the x-intercept will not change.the x-intercept will not change. the y-intercept will increase.the y-intercept will increase. the y-intercept will decrease.the y-intercept will decrease. the y-intercept will not…Consider a graph with paper on the x-axis and pencils on the y-axis. If the price of pencils increases, then (select all that apply): the budget constraint will become steeper (the absolute value of the slope will increase).the budget constraint will become steeper (the absolute value of the slope will increase). the budget constraint will become flatter (the absolute value of the slope will decrease). the budget constraint will become flatter (the absolute value of the slope will decrease). the slope of the budget constraint will not change.the slope of the budget constraint will not change. the x-intercept will increase.the x-intercept will increase. the x-intercept will decrease.Suppose we have the following utility function: U(x,y)=x^O.33 y^0.67 1) What is the Marginal utility of x? Marginal utility of y? 2) Comment on how the marginal utility of each changes as x increases and discuss why that makes sense. 3) Does this utility function follow the more is better rule? How do you know? 4) What is the marginal rate of substitution (MRS)? What do we know about the shape of the indifference curve given this MRS? 5) Now suppose we have a new utility function: U(x,y)=x+y. What type of goods are these? Explain.
- The local swimming pool charges nonmembers $10 per visit. If you join the pool, you can swim for $5 per visit, but you have to pay an annual fee of $F. Use an indifference curve diagram to find the value of F that would make it just worthwhile for you to join the pool. Suppose that the pool charged you exactly that value. Would you swim more or less than you did before joining? Use income and substitution effects to explain your answer.A consumer has an income of $400 and is deciding between two products: X and Y. Assume that the X product is the horizontal axis product. The price of X is $10 and the price of Y is $2. Assume the consumer currently wants to consume 50 units of product Y to maximize his utility. a) Write out the equation to this consumers budget line. What is the slope to this budget constraint? b) How much of X and Y will the consumer consume to maximize his utility subject to his budget constraint. C) Now assume the price of X changes to $5 and price of Y and Income stays the same. At the new price, the consumer wants to buy 60 units of product X to maximize her utility given her budget. How much X and Y will the consumer consume to maximize utility. g in the before and after the change of the budget constraint and indifference graph on the same graph space. Show all necessary points. Label clearly. ead oubstitutiofs. Draw d) Write out the expression of the utiiity maximizing ruie here.?A consumer has an income of $400 and is deciding between two products: X and Y. Assume that the X product is the horizontal axis product. The price of X is $10 and the price of Y is $2. Assume the consumer currently wants to consume 50 units of product Y to maximize his utility. a) Write out the equation to this consumers budget line. What is the slope to this budget constraint? b) How much of X and Y will the consumer consume to maximize his utility subject to his budget constraint. C) Now assume the price of X changes to $5 and price of Y and Income stays the same. At the new price, the consumer wants to buy 60 units of product X to maximize her utility given her budget How much X and Y will the consumer consume to maximize utility. S the before and after the change of the budget constraint and indifference gra on the same graph space. Show all necessary points. Label clearly. s. Draw d) Write out the expression of the utiity maximizing ruie here.?
- suppose you have a fixed income of $3000 per month and you want to allocate your budget between two products: X and Y. Let's say the price of good x is $10 per unit, and the price of good y is $20 per unit. What is the budget constraint? Draw it on a graph and label the intercepts and the slope.Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Draw an indifference curve showing the optimum choice. Label the optimum as point A. What would be the marginal rate of substitution at the point that corresponds to the optimal consumption choice? Interpret the marginal rate of substitutionAmanda consumes three different products: apple (x), orange (y) and banana (z). Her utility function is U=xy^2z^3. The prices of the products: px=20, py=30, pz=40. Her income that she spends for fruits is 3,000. How many apple (x), orange (y), and banana (z) does she buy in case of optimal consumption?
