Use the budget constraint PxX+PYY=M, thinking of good X as a food item and good Y...

Use the budget constraint PxX+PYY=M, thinking of good X as a food item and good Y as other goods. Present an analysis where an increase in price of the food item causes the consumer to by less food, demonstrating the “law of demand.” Then, present a second analysis where an increase in the price of the food item causes the consumer to buy more of the food item, which is the Giffen Good case. Finally, identify two food items, one which you think fits the first case and one which you think fits the second case.

Expert Solution

Rahul Sunny answered 2 years ago

2 (a) Emily has a budget constraint with the form m ≥ pxx + pyy, (where m =...

2 (a) Emily has a budget constraint with the form m ≥ pxx + pyy, (where m = income, px, py are prices of x and y ), and is observed to choose (x, y) = (3, 5) when (px, py) = (1, 2) and (x, y) = (5, 3) when (px, py) = (2, 1). Is Emily's behaviour consistent with the (weak) axiom of revealed preference? (b) Suppose Emily has no income, but has 10 units of x, 4 units of y, and...

2 (a) Emily has a budget constraint with the form m ≥ pxx + pyy, (where...

2 (a) Emily has a budget constraint with the form m ≥ pxx + pyy, (where m = income, px, py are prices of x and y ), and is observed to choose (x, y) = (3, 5) when (px, py) = (1, 2) and (x, y) = (5, 3) when (px, py) = (2, 1). Is Emily's behaviour consistent with the (weak) axiom of revealed preference? (b) Suppose Emily has no income, but has 10 units of x, 4...

Let utility be defined as by U(x,y)=xy+y with a budget constraint of I=pyY+pxX. Your solutions for...

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[Management Economics] One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M...

[Management Economics] One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M . (Px,Py,M)=(4,2,24). (1) Explain the meaning of Px/Py=2 (2) Draw a budget line. (3) Draw an indiscriminate curve that conforms to a given utility function. (4) Find the optimal consumption (X*,Y*) (5) Calculate the income elasticity of demand for X goods.

One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M. (Px,Py,M)=(4,2,24). (1)...

One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M. (Px,Py,M)=(4,2,24). (1) Explain what Px/Py=2 means. (2) Draw a budget line. (3) Draw an indiscriminate curve that conforms to a given utility function. (4) Find the optimal consumption (X*,Y*). (5) Calculate the income elasticity of demand for product X.

One consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M. (Px,Py,M)=(4,2,24). (1) What...

One consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M. (Px,Py,M)=(4,2,24). (1) What does Px/Py=2. mean in this case? (2) Draw a budget line. (3) Draw an indiscriminate curve that conforms to a given utility function. (4) Find out the optimal consumption (X*,Y*). (5) Calculate the income elasticity of demand for X goods.

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Question 2. (a) A consumer has a budget constraint which takes the usual form m ≥ pxx...

Question 2. (a) A consumer has a budget constraint which takes the usual form m ≥ pxx + pyy, (where m is income and px, py are the prices of x and y respectively), and is observed to choose (x, y) = (3, 5) when (px, py) = (1, 2) and (x, y) = (5, 3) when (px, py) = (2, 1). Is the consumer’s behaviour consistent with the (weak) axiom of revealed preference? (b) Suppose an individual has no income, but is endowed with...

Suppose an individual has the following utility function: U(X,Y) = 2XY. Draw the budget constraint when...

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