Question

In: Economics

Consider an individual making choices over two goods, x and y with initial prices px= 2...

Consider an individual making choices over two goods, x and y with initial prices px= 2 and py= 1, with income I= 100: (a) If an individual has the utility function u(x;y) = 3x+y. what would the total, income and substitution effects of a price of x increase to 5? Show your work (b) If an individual has the utility function u(x;y) =x^2+y^2; what would the total, income and substitution effects of a price of x decrease to 0:50? Show your work

Solutions

Expert Solution

Rahul Sunny answered 6 months ago
Next > < Previous

Related Solutions

Consider an individual making choices over two goods, x and y with prices px = 3...
Consider an individual making choices over two goods, x and y with prices px = 3 and py = 4, and who has the income I = 120 and her preferences can be represented by the utility function U(x,y) = (x^2)(y^2). Suppose the government imposes a sales tax of $1 per unit on good x: (a) Calculate the substitution effect and Income effect (on good x) after the price change. Also Illustrate on a graph. (b) Find the government tax...
Consider an individual making choices over two goods, x and y with prices px and py,...
Consider an individual making choices over two goods, x and y with prices px and py, with income I , and the utility function u(x,y) = xy1/2.You already know that this yields the demand functions x∗ = 2I 3px and y∗ = I 3py (no need to calculate). (a) Find the indirect utility function, expenditure function and the compensated (Hicksian) demands for x and y. Show your work. (b) Use your expenditure function to find the compensating variation for a...
1. Consider the preferences of an individual over two goods, x and y, with prices px...
1. Consider the preferences of an individual over two goods, x and y, with prices px and py and income I. (a) If the individual's preferences can be represented by the utility function u(x,y) =2x1/2 + y, what is the marginal rate of substitution? What does this MRS imply about how this consumer would trade y for x? Are the underlying preferences homothetic (explain)? Graphically illustrate a typical indifference curve and explain how you know the shape. (b) If the...
An agent chooses between two goods, x and y, with prices px and py, respectively. She...
An agent chooses between two goods, x and y, with prices px and py, respectively. She has an income I and her preferences are represented by the utility function U (x, y) = lnx + y. A. Suppose that I = 100, px = 2 and py=1. How much of good x and y will the agent choose? B. If the price of good x rises to px=4, with income and the price of good y remaining the same, what...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The government is considering two alternative taxation policies: (a) taxing good X; (b) putting a lump- sum tax on A. By using a graphical analysis, compare these two taxation policies in terms of “excess burden”.
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The government is considering two alternative taxation policies: (a) taxing good X; (b) putting a lumpsum tax on A. By using a graphical analysis, compare these two taxation policies in terms of “excess burden”.
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The government is considering two alternative taxation policies: (a) taxing good X; (b) putting a lumpsum tax on A. By using a graphical analysis, compare these two taxation policies in terms of “excess burden”
Suppose there are two goods in an economy, X and Y. Prices of these goods are...
Suppose there are two goods in an economy, X and Y. Prices of these goods are Px and Py, respectively. The income of the only agent (consumer) in the economy is I. Using this information, answer the following questions: a. Write down the budget constraint of the consumer. Draw it on a graph and label the critical points accordingly. Provide a verbal explanation of why all income is spent, mentioning the underlying assumption for this outcome. b. Define substitution and...
Consider a producer making choices over two inputs, labour (l) and capital (k) with prices w...
Consider a producer making choices over two inputs, labour (l) and capital (k) with prices w = 3 and r = 1. The production technology is f(l, k) = l + 3k. What is the marginal rate of technical substitution (MRTS)? Is there diminishing MRTS? Find the input demands in long-run (as a function of output level)? Find the long-run total cost, marginal cost, and average cost functions? Do the properties of a typical cost function hold for the long...
Consider Scott who consumes only two goods, Coke (Y) and Steak (X). The prices of Coke...
Consider Scott who consumes only two goods, Coke (Y) and Steak (X). The prices of Coke and steak are $2.00 and $10.00, respectively. He has a weekly budget of $90 and his optimal consumption bundle is 20 units of Coke and 5 units of steak per week. (20) (a) Draw Scott’s optimal choice diagram for Coke and steak. [Note: define the budget constraint, the slope, and the utility function.] (4) Scott found that the price of steak is reduced to...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT