Zeynep is at the supermarket buying her bi-weekly groceries. As she arrived at the store rightbefore closing, not much is left on the shelves; so her purchases are limited to beef, B, and anassortment of organic vegetables, V. Beef costs £50/kg and vegetables Ł10/kg. Her utility functionis expressed as U(B,V) = B0-6v0.3. She has ±150 to spend. Please answer the following questionsusing this information:A) Given the vegetables cost less than beef, explain why Zeynep would not only buyvegetables.B) Write Zeynep's constrained maximization problem (objective function subject toher budget constraint).C) Using the Lagrangian technique, find how much beef and vegetables wouldZeynep buy?D) Show that for the preferences represented as above, demand for beef is a functionof only its own price, pg, and income, m, but not the price of vegetables, py. Note: Ratherthan using the given prices and income, use PB, Py and m. Find and comment on thecomparative statics, i.e., how do changes in income and prices affect the demand for beef?E) What is the degree of homogeneity of the beef demand function you found in part(d)?F) Suppose there is a promotion for beef and the price falls to Ł40/kg. Calculate thecompensated income, m°, for Zeynep to consume the same amount of beef and vegetablesunder the new prices. Under the promotional price, how much beef does Zeynep buy?Decompose the change in her demand for beef into substitution and income effects usingSlutsky decomposition. Comment on signs of these effects, i.e., is beef a normal or an inferiorgood for Zeynep?

A) Given U(B,V) = B0.6V0.3 Price of Beef (PB) = 50 Price of Vegetable (PV) = 10 Income (M) = 150…

Zeynep is at the supermarket buying her bi-weekly groceries. As she arrived at the store right before closing, not much is left on the shelves; so her purchases are limited to beef, B, and an assortment of organic vegetables, V. Beef costs £50/kg and vegetables Ł10/kg. Her utility function is expressed as U(B,V) = B0.6v°.3. She has £150 to spend. Please answer the following questions using this information: %3D A) Given the vegetables cost less than beef, explain why Zeynep would not only buy vegetables. B) Write Zeynep's constrained maximization problem (objective function subject to her budget constraint). C) Using the Lagrangian technique, find how much beef and vegetables would Zeynep buy?

Zeynep is at the supermarket buying her bi-weekly groceries. As she arrived at the store right before closing, not much is left on the shelves; so her purchases are limited to beef, B, and an assortment of organic vegetables, V. Beef costs £50/kg and vegetables Ł10/kg. Her utility function is expressed as U(B,V) = B0.6v°.3. She has £150 to spend. Please answer the following questions using this information: %3D A) Given the vegetables cost less than beef, explain why Zeynep would not only buy vegetables. B) Write Zeynep's constrained maximization problem (objective function subject to her budget constraint). C) Using the Lagrangian technique, find how much beef and vegetables would Zeynep buy?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 8P

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