Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py...

Assume that a consumer purchases a combination of products Y and Z and that the MU_y/P_y = 15 and MU_z/P_z = 18. To maximize utility, without spending more money, the consumer should

Solutions

Expert Solution

Increase Consumption of good Z and decrease consumption of good Y.

Explanation :

Utility maximization rule is,

MUy/Py =MUx/Px

So, here marginal utility per dollar for good Z is higher than marginal utility per dollar for good y. So to equal, we should increase the consumption of good z and decrease consumption of good y.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Assume that a consumer purchases a combination of products. Product A is an old and reliable...

Assume that a consumer purchases a combination of products. Product A is an old and reliable product. Product B is a new and appealing product. The MUa/Pa = 40 and MUb/Pb = 45. To maximize utility without spending more money, the consumer should purchase less of A and more of B. make no change in A and B. purchase more of A and less of B. purchase more of both A and B.

For each of the formulas below, state whether it is true or false. a) pX,Y,Z(x,y,z)=pY(y)pZ∣Y(z∣y)pX∣Y,Z(x∣y,z) ...

For each of the formulas below, state whether it is true or false. a) pX,Y,Z(x,y,z)=pY(y)pZ∣Y(z∣y)pX∣Y,Z(x∣y,z) Select an option True False b) pX,Y∣Z(x,y∣z)=pX(x)pY∣Z(y∣z) Select an option True False c) pX,Y∣Z(x,y∣z)=pX∣Z(x∣z)pY∣X,Z(y∣x,z) Select an option True False d) ∑xpX,Y∣Z(x,y∣z)=1 Select an option True False e) ∑x∑ypX,Y∣Z(x,y∣z)=1 Select an option True ...

A consumer finds only three products, X, Y, and Z, are for sale. The amount of...

A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and $8, respectively. The consumer has an income of $74 to spend. Product X Product Y Product Z Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per $ 1 42 _____ 1...

Suppose that a consumer is at a bundle, (x0,y0), such that Ux/px > Uy/py. Assume a...

Suppose that a consumer is at a bundle, (x0,y0), such that Ux/px > Uy/py. Assume a well-behaved utility function. (a) Represent this situation graphically, in the commodity space (hint: you will have an indifference curve, a budget line, and the point (x0,y0)). (b) What change in consumption will this consumer need to make so that Ux/ px = Uy/py and why.

Chapter 6 Problem A consumer finds only three products, X, Y, and Z, are for sale....

Chapter 6 Problem A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility which their consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and $8, respectively, and that the consumer has an income of $74 to spend. Product X (Price $10) Product Y (Price $2) Product Z (Price $8) Quantity Utility Marginal Utility per $ Quantity Utility Marginal Utility per...

"Suppose a consumer has preferences represented by the utility function U(X,Y) = X(^2)Y Suppose Py =...

"Suppose a consumer has preferences represented by the utility function U(X,Y) = X(^2)Y Suppose Py = 1, and the consumer has $360 to spend. Draw the Price-Consumption Curve for this consumer for income values Px =1, Px = 2, and Px = 5. Your graph should accurately draw the budget constraints for each income level and specifically label the bundles that the consumer chooses for each income level. Also for each bundle that the consumer chooses, draw the indifference curve...

Suppose a consumer has preferences given by U(X,Y) = MIN[2X,Y]. Suppose PX = 1 and PY...

Suppose a consumer has preferences given by U(X,Y) = MIN[2X,Y]. Suppose PX = 1 and PY = 2. Draw the Income Consumption Curve for this consumer for income values • M = 100 • M = 200 • M = 300 To do this, carefully draw the budget constraints associated with each of the prices for good X, and indicate the bundle that the consumer chooses in each case. Also, be sure to label your graph accurately.

1. Assume that if PY = 50, then QdX = 900, and if PY = 80,...

1. Assume that if PY = 50, then QdX = 900, and if PY = 80, then QdX = 600. Use these two prices of good Y (PY) and the two quantities demanded of good X (QDX) to calculate the cross-price elasticity of the demand of good X when the price of good Y increases from 50 to 80. -0.69 0.69 0.87 -0.87 2. Based on your answer to question 14, goods X and Y are: inelastic complements inferior substitutes...

Suppose a consumer purchases only two products: mystery novels (good X) and computer games (good Y)....

Suppose a consumer purchases only two products: mystery novels (good X) and computer games (good Y). The consumer’s income (budget) is $200 per period, the price of a novel (PX) is $10, and the price of a computer game (PY) is $20. a. Determine and illustrate the budget constraint for the consumer. Be sure to specify the budget line equation in your answer. b. Now suppose the consumer’s tastes and preferences are defined by the following Cobb-Douglas utility function: U=...

assume that U(x, y) = xy, Px = 1, Py = 4 and B = 120....

assume that U(x, y) = xy, Px = 1, Py = 4 and B = 120. Using the Bordered Hessian matrix, verify that the second-order conditions for a maximum are satisfied. Show steps.

Subjects