Suppose a consumer buys 20 units of good X and 10 units of good Y every...

Suppose a consumer buys 20 units of good X and 10 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005–2007. Assume that these two goods at the mentioned consumption constitute the typical market basket. Calculate the price indices for these years with 2005 as the base year and complete table. What is the inflation rates for 2006 and 2007? Compared to 2005, was inflation higher in 2006 or 2007?

Year	Good X	Good Y	Cost of Market Basket	Price Index
2005	$3.00	$6.00
2006	$4.00	$7.00
2007	$4.50	$7.50

Expert Solution

Rahul Sunny answered 2 years ago

Suppose that U = XY . The prices of good X and good Y are $10...

Suppose that U = XY . The prices of good X and good Y are $10 and $5, respectively. How many units of good X does the consumer buy if she has $1000 of income? a) 10 b) 25 c) 50 d) 41

1.Suppose that a consumer buys only two goods, X and Y. At the current consumption bundle,...

1.Suppose that a consumer buys only two goods, X and Y. At the current consumption bundle, the marginal rate of substitution is 3, the price of Good X is $4, and the price of Good Y is $2. a.How many units of Good Y is the consumer willing to give up to obtain one more unit of Good X? How many units of Good X is the consumer willing to give up to obtain more unit of Good Y? b.How...

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=...

As the price of good X rises from $10 to $12, the quantity demanded of good Y rises from 100 units to 114 units.

As the price of good X rises from $10 to $12, the quantity demanded of good Y rises from 100 units to 114 units. (a) Are X and Y substitutes or complements? Using an appropriate example, define what substitute and complimentary goods are. (b) What is the cross elasticity of demand? Define Cross Elasticity of demand. Using the correct formula (show it) calculate the correct answer using the numbers provided.

Suppose that the utility function of a consumer is U(x,y) = x ¼y ¾, where x...

Suppose that the utility function of a consumer is U(x,y) = x ¼y ¾, where x and y are the quantities of the good X and good Y consumed, respectively. The consumer's income is 400. (a) What is the demanded bundle when the price of good X is 10 and the price of good Y is 10? (b) Redo part (a) when the price of good X is doubled? (c) Redo part (a) when the price of good Y is...

Consider a consumer with preferences over two goods (good x and good y) given by u...

Consider a consumer with preferences over two goods (good x and good y) given by u ( x , y ) = x ⋅ y. Given income of I and price of good yas $ P yper pound and price of good xgiven as $ P xper pound, the consumer chooses the optimal consumption bundle given as x ∗ = I 2 P x and y ∗ = I 2 P y . Given P x = $ 1per pound...

Suppose a consumer has a utility function given by u(x, y) = x + y, so...

Suppose a consumer has a utility function given by u(x, y) = x + y, so that the two goods are perfect substitutes. Use the Lagrangian method to fully characterize the solution to max(x,y) u(x, y) s.t. x + py ≤ m, x ≥ 0, y ≥ 0, where m > 0 and p < 1. Evaluate and interpret each of the multipliers in this case. What happens to your solution when p > 1? What about when p =...

"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...

1. A consumer buys only two goods x and y, with income, I =$40. Price of...

1. A consumer buys only two goods x and y, with income, I =$40. Price of y = $2. In the following problems you are asked to draw the budget lines for the consumer under different situations using Excel. Note the equation of the budget line is given by Pxx+Pyy=I In order to draw the budget line, first create a column of values of x. Then using the equation of the budget line, create a column of corresponding values of...

1. Suppose that good X and good Y are substitutes: 1.1) What will happen to the...

1. Suppose that good X and good Y are substitutes: 1.1) What will happen to the equilibrium prices and quantities for good X and good Y if input prices for good X increase? Explain by drawing demand and supply curves. 1.2) What will happen to the equilibrium prices and quantities for good X and good Y if there is improvement in production technology for good Y? Explain by drawing demand and supply curves.

Question