Question

In: Economics

Given: X TUx MUx MUx/Px Y TUy &nbs

Given:

X TUx MUx MUx/Px Y TUy MUy MUy/Py MUy/Py’

0 0 0 0 0 0 0 0 0

1 250 1 350

2 450 2 550

3 600 3 700

4 700 4 800

5 775 5 875

6 800 6 900

Suppose income I = $160, Px = $20, & Py = $20.

Find the combination of X and Y that maximizes utility.
Calculate Consumers’ surplus of X, CSx = TUx – TEx, total utility minus total expenditures such that total expenditures TEx = Px.X. Do the same for commodity Y. Calculate consumers’ surplus CSy = TUy – TEy, where total expenditures TEy = Py.Y.
Suppose Py rises to Py’ = $40. Find the combination of X and Y that maximizes utility.
Calculate CSy’ the new consumers’ surplus of Y, CSy’ = TUy’ – TEy’.
Draw the demand curve for commodity Y. Is it downward sloping?
Challenging question: Find the equation for demand pertaining to commodity Y such that Py = a – bY. In other words, find the parameters a and b.

Expert Solution

Answer: For the complete solution to this problem, refer to the images below:

Rahul Sunny answered 1 year ago

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