Question
In: Economics
Ed's utility from vacations (V) and meals (M) is given by the function U(V,M) = V2M....
Ed's utility from vacations (V) and meals (M) is given by the function U(V,M) = V2M. Last year, the price of vacations was $200 and the price of meals was $50. This year, the price of meals rose to $75, the price of vacations remained the same. Both years, Ed had an income of $1,500. Include a budget line and indifference curve diagram in your response to this question.
- What is Ed’s optimal consumption of vacations and meals before and after the price change?
- Calculate the substitution and income effects arising from the change in meal price. Are meals a normal good, and inferior good, or neither? Explain.
Solutions
Rahul Sunny answered 9 months agoRelated Solutions
Ed's utility from vacations (V) and meals (M) is given by the function U(V,M) = V2M....
Ed's utility from vacations (V) and meals (M) is given by the
function
U(V,M) = V2M. Last year, the price of vacations was $200 and the
price of meals
was $50. This year, the price of meals rose to $75, the price of
vacations remained
the same. Both years, Ed had an income of $1500.
a. Set up a Lagrangian to solve utility maximization problem with
initial
price and find equilibrium.
b. When price of meals increased repeat the a...
Ed's utility from vacations (V) and meals (M) is given by the function U(V,M) = V2M....
Ed's utility from vacations (V) and meals (M) is given by the
function U(V,M) = V2M. Last year, the price of vacations was $200
and the price of meals was $50. This year, the price of meals rose
to $75, the price of vacations remained the same. In both years, Ed
had an income of $1500. Calculate the ΔCS, CV, and EV from the
change in meal prices.
Sophie's given utility function is U(V, C) = VC + V where V = # of...
Sophie's given utility function is U(V, C) = VC + V where V = #
of visits per month and C = # of minutes per month (hundreds). V =
$1 and C = $4 and M = $44.
a) Calculate the equation that represents the consumers demand
for number of visits (V).
b) Say that V increases to $16. Calculate the new equilibrium.
Compute Sophie's substitution and income effect and represent it
within a diagram.
(15) There are two groups of individuals, each with a utility function given by U(M)=√M, where...
(15) There are two groups of individuals, each with a utility
function given by U(M)=√M, where M=8,100 is the initial wealth
level for every individual. The fraction of group 1 is 3/4 . Each
member of group faces a loss of 7,200 with probability 1/2. Each
member of group faces a loss of 3,200 with probability 1/2. Assume
that the insurance market is perfectively competitive. And the
insurance company does not know who belongs to which group.
(5) What is...
Let the utility function be given by u(x1, x2) = √x1 + x2. Let m be...
Let the utility function be given by
u(x1, x2) = √x1 + x2.
Let m be the income of the consumer, P1 and P2 the prices of good 1
and good 2, respectively.
To simplify, normalize the price of good 1, that is P1 = £1.
(a) Write down the budget constraint and illustrate the set of
feasible bundles using a figure.
(b) Suppose that m = £100 and that P2 = £10. Find the optimal
bundle for the consumer....
A home owner has a utility function of U (m) = √m, where m is income....
A home owner has a utility function of U (m) =
√m, where m is income. The home owner is
considering buying flood insurance because they live near a river
that has flooded in the past. If it is a dry year, she will have an
income of $60,000 to spend on other things. If it is a rainy year
and there is a flood, then she has to pay for repairs to her house.
Then her income will only...
If the Utility function for the consumption of milk and bananas is given by U =qm0.6qb0.4...
If the Utility function for the consumption of milk and bananas
is given by U
=qm0.6qb0.4
and the price of milk is $12 and price of banana is $8, find
Marginal Utility from consuming milk
Marginal Utility from consuming banana
Will the consumer be maximizing satisfaction when he/she
consumes one unit each of milk and bananas? If
not, what should he/she consume next to increase satisfaction?
Will the consumer be maximizing satisfaction when he/she
consumes two units of milk and...
Suppose that the utility you receive from buying vegetables (V) and medicine (M) are given by:...
Suppose that the utility you receive from buying vegetables (V)
and medicine (M) are given by: ???????(?, ?) = 4? ^0.8?^0.2)
a) What is your marginal utility of vegetables and medicine?
b) What is your marginal rate of substitution (vegetables as x
good and medicine as y good) between the two?
c) If the price of vegetables is $20, the price of medicine is
$15, and income is $120, what is your optimal consumption of V and
M? Graphically show...
Question 1: Given the following utility function: (U=Utility, l=leisure, c=consumption) U = 2l + 3c and...
Question 1:
Given the following utility function: (U=Utility, l=leisure,
c=consumption)
U = 2l + 3c
and production function: (Y=Output, N or Ns=Labour or Labour
Supply)
Y = 30N1/2
If h = 100 and G =10 (h=Hours of labour, G=Government spending).
Find the equilibrium levels of the real wage (w), consumption (c),
leisure (l), and output (Y).
Question 2: (Continuting from question 1)
a, Find the relationship between total tax revenue and the tax
rate if G = tWN. (G=Government spending,...
Question 1: Given the following utility function: (U=Utility, l=leisure, c=consumption) U = 2l + 3c and...
Question 1: Given the following utility function: (U=Utility,
l=leisure, c=consumption) U = 2l + 3c and production function:
(Y=Output, N or Ns=Labour or Labour Supply) Y = 30N1/2 If h = 100
and G =10 (h=Hours of labour, G=Government spending). Find the
equilibrium levels of the real wage (w), consumption (c), leisure
(l), and output (Y). Question 2: (Continuting from question 1) a,
Find the relationship between total tax revenue and the tax rate if
G = tWN. (G=Government spending,...
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