Suppose that Joey has classical bow-shaped indifference curves (convex) that do not intersect the axes for...

Suppose that Joey has classical bow-shaped indifference curves (convex) that do not intersect the axes for two goods X and Y. Draw an indifference curve and a budget line for Joey showing an equilibrium consumption bundle and label it A. Assume that the price of good Y increases. Carefully sketch out the change in the equilibrium bundle, indicating the income and substitution effects, assuming that:

Y is a normal good.
Y is an inferior good, but not a Giffen good.
Y is a Giffen good.
Assume now that the optimal consumption bundles on both the original budget line

and the new budget line include 20 units of Y (Joey kept buying 20 units of Y even after the price of Y increased). Can you determine if Y is a normal or inferior good? What about good X? Explain.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Bernie Sanders, who has ordinary-shaped (convex) indifference curves, spends his income on prune juice and all...

Bernie Sanders, who has ordinary-shaped (convex) indifference curves, spends his income on prune juice and all other goods. He buys 10 gallons of prune juice each month. Even when the price of prune juice doubles, Bernie continues to purchase exactly 10 gallons. 1. True, false, or uncertain: Prune juice is a normal good for Bernie. You must include both verbal and graphical analysis in your response.

Explain why indifference curves cannot intersect one another

Prove the following statements: (a) indifference curves can never intersect. (b) an indifference curve is never...

Prove the following statements: (a) indifference curves can never intersect. (b) an indifference curve is never positively-sloped.

(i) With the aid of appropriate diagrams, explain why indifference curves are traditionally convex to the...

(i) With the aid of appropriate diagrams, explain why indifference curves are traditionally convex to the origin. (10%) (ii) Given the indifference curve for two-goods is convex, derive a price inelastic demand curve for Good X (10%) (iii) With reference to the previous elements of this coursework question, discuss the links between the indifference curve, price elasticity estimates and the theory of supply and demand in economics (80%).

On two sets of axes, draw identical concave production possibility frontiers with different community indifference curves...

On two sets of axes, draw identical concave production possibility frontiers with different community indifference curves tangent to them. What would have happened if the two countries have identical indifference curves? Is it possible that both countries get better off by having trade each other? (Sketch a graph of this situation

Problem 1: (a) Prove the statement: Two indifference curves can never intersect.(b) Verify whether the following...

Problem 1: (a) Prove the statement: Two indifference curves can never intersect.(b) Verify whether the following statement is true or false, and explain. A choice is rational when an indifference curve is tangent to the budget line. (c) I am indifferent between consuming bundle 1 (5 cookies and 10 chocolates) and bundle 2 (10 cookies and 5 chocolates). I am also indifferent between bundle 2 and bundle 3 (9 cookies and 15 chocolates). If I also stated that I prefer...

Using the Classical model with indifference curves (one factor and two goods), explain how free trade...

Using the Classical model with indifference curves (one factor and two goods), explain how free trade may affect the social utility level of an economy. (Assuming that the economy is completely specialized in production.) Explain how the change in welfare can be measured in terms of a change in national income. How can the change in welfare be disaggregated into the production gain and the consumption gain? What is the meaning of production gain and consumption gain? Draw diagram(s) to...

What do indifference curves look like for preferences exhibiting satiation?

3) What are indifference curves and how do they relate to a budget line? Draw a...

3) What are indifference curves and how do they relate to a budget line? Draw a graph showing 3 indifference curves and a budget line. Why is one indifference curve tangent to the budget line? What happens if the price of one good changes? (15 points). please give all three graphs.

1. (4) Suppose that good1 and good 2 are perfect substitutes with indifference curves described by...

1. (4) Suppose that good1 and good 2 are perfect substitutes with indifference curves described by straight lines with a slope of -a. Given the prices and income P1, P2, and I, solve for the consumer’s optimal choices? 2. Show that each of the following utility functions has a diminishing MRS. Do they exhibit constant, increasing, or decreasing marginal utility? Is the shape of the marginal utility function an indicator of the convexity of indifference curve? a. (2) U(X,Y) =...

Subjects