Assume that you have two goods: beverage (y-axis) and food (x-axis), graphically illustrate the income and...

Assume that you have two goods: beverage (y-axis) and food (x-axis), graphically illustrate the income and substitution effects of a price decline in food for a normal good. Note a point on the new indifference curve (after the change) that could represent an inferior good and Giffen good respectively. What is a Giffen good and what are its implications?

Expert Solution

Rahul Sunny answered 2 years ago

Suppose that there are two individuals (X and Y) and two goods (Food and Clothes) in...

Suppose that there are two individuals (X and Y) and two goods (Food and Clothes) in an economy (Food is in horizatal axes). The initial endowment of X is 50 units of Food and 70 units of of Clothes and initial endowment of Y is 60 units of Food and 40 units of Clothes. Price of Food is $ 96 and price of Clothes is $ 32 . A) What is the price ratio (slope of price line)? B) What...

Two goods are in the consumer basket, goods X and Y. The consumer income is I,...

Two goods are in the consumer basket, goods X and Y. The consumer income is I, price of good X is Px, and price of good Y is Py. Use the consumer model to derive the demand curve for good X. Explain your answer in details. b. Using your answer in part a, clearly explain and show the substitution effect and the income effect.

You consume two goods, X and Y . On Tuesday, the price of Y (not X!!)...

You consume two goods, X and Y . On Tuesday, the price of Y (not X!!) rises. On Wednesday, there are no new price changes, but your income rises until you are just as happy as you were on Monday. a) Draw your budget lines and optimum points on all three days. Label the optima M, T and W. b) In terms of the locations of the optimum points, what would it mean for Y to be a Giffen good?...

You have the following information for goods X and Y: Goods Price elasticity Cross-price elasticity Income...

You have the following information for goods X and Y: Goods Price elasticity Cross-price elasticity Income elasticity X 0.4 -0.7 -1.8 Y 0.9 -0.7 0.6 Fill out the spaces in the following statements: Based on the price elasticity, we can say that good X is price ___________________ Based on the cross-price elasticity, we can say that goods X and Y are _______________ Based on the income elasticity, we can say that good Y is _________________

Assume economy with two goods x and y and two people Alice and Bob. The MRSA...

Assume economy with two goods x and y and two people Alice and Bob. The MRSA of Alice is 15. The MRSB of the Bob is 10. (a) Is the current allocation of x and y is efficient? Why yes or why not? (b) Is there a trade that would be voluntary? Explain. Support your answer by graph. (c) Pareto Efficient Allocations, the Contract Curve and the Core. Define these three terms and explain the relationship between them. Use the...

A consumer has an income of $120 to buy two goods (X, Y). the price of...

A consumer has an income of $120 to buy two goods (X, Y). the price of X is $2 and the price of Y is $4. The consumer utility function is given by UX,Y=X2/3*Y1/3 You are also told that his marginal utilities are MUX=23YX1/3 MUY=13XY2/3 Find the slope of the budget constrain. (1 point) Calculate the optimal quantity of good X and Y for this consumer (Point A). (2 points) Assume that the price of good X...

If a consumer spends all her income on two goods X and Y , then she...

If a consumer spends all her income on two goods X and Y , then she can just afford either consumption bundle (5, 10) or (10, 7.5). Write the equation of her budget line.

Jones spends all his income on two goods: X and Y. The price of good X...

Jones spends all his income on two goods: X and Y. The price of good X is PX = 15. The quantity of good X consumed is X = 20. The price of good Y is PY = 25 and the quantity of good Y consumed is Y = 30. A) Based on Jones's consumption choices, what is his income? B) If the prices next year will be PX = 9 and PY = 45, and Jones's income will be...

Suppose you can spend your monthly income on two specific goods X and Y. For each...

Suppose you can spend your monthly income on two specific goods X and Y. For each of the following cases a) to c), answer the following questions: i) Sketch some indifference curves in the appropriate graph. Tip: Start by connecting bundles that yield the same level of utility. ii) Derive the utility function if possible. iii) What kind of preferences are the indifference curves derived from? Are they rational? Why, why not? iv) State a unique example of what good...

assume that food is measured on the horizontal axis and clothing on the vertical axis. if...

assume that food is measured on the horizontal axis and clothing on the vertical axis. if the price of food increases relative to that of clothing, the budget line will.... a- become flatter b- becom steeper c- shitf outward d-become steeper or flatter depending on the relationship between price and income. e- none of the above Every optimal choice point - Indicates a point on the income consumption curve - represents tangency - maximizes demand - all if the above...

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