Question

In: Economics

Suppose two different bundles of goods cost the same amount of income M. How does this...

  1. Suppose two different bundles of goods cost the same amount of income M. How does this relate to a budget line? Furthermore, suppose there are only two goods, x and y and that the price of x is $4 and the price of y is $2. If the income of the consumer is $20, find two bundles that are affordable and have the same total expenditure. Illustrate this in a graph.
  2. Suppose a consumer has income $25 and can spend it in two goods x and y. The price of y is $2 and the price of x is dependent on how many units of x purchased. More specifically, suppose the price of x is px=2x. For example, if the consumer buys one unit of x then the price per unite is px=2 • 1 = 2 and if the consumer buys two units of x then the price per unit is px = 2•2 = 4 per unit. Determine the equation for the budget constraint. Illustrate this on a graph
  3. Suppose there are two goods the consumer can buy with income M and facing prices px and py. If Income and both prices double, what happens to the budge line? Why? Show this mathematically.
  1. Consider a consumer with utility function u(x,y) = xy. Is the bundle (1,1) better than the bundle (0.5,2)? Suppose a consumer now wants to maintain a utility level of 4. What are the bundles of (x,y) that will achieve this objective?
  1. Consider a relation R= “ is at least as old as.” Does this relation satisfy the three axioms if consumer theory

Solutions

Expert Solution

1) Budget line is the locus of all bundles of good X and Good Y which can be purchased with given income M and prices Px and Py, such that the expenditure of each of the possible combinations is equal to the total money income of the consumer. . If the price of good X is Px and price of good Y is Py, then equation of the budget line is given by :

Px*x+ Py*y = M where, Px: Price of good X, Py: Price of Good Y, x: Units of good X consumed, y: Units of good Y consumed, M: Income of the consumer

Given: Px = $4 and Py= $2, M = $20

Budget Equation: 4x +2y = 20

two bundles that are affordable and have the same total expenditure:

If x= 2, => 4*2 + 2y = 20 => 8 +2y = 20

2y = 20-8 = 12 => y=12/2 = 6

First bundle: (x,y) = (2,6)

If x= 4, => 4*4 + 2y = 20 => 16 +2y = 20

2y = 20-16 = 4 => y=4/2 = 2

Second bundle: (x,y) = (4,2)

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

How does Cost of Goods Sold affect Income. Does it increase or decrease income and by...
How does Cost of Goods Sold affect Income. Does it increase or decrease income and by how much?
To be indifferent between two combinations of goods is to: a. receive the same amount of...
To be indifferent between two combinations of goods is to: a. receive the same amount of utility from the two combinations. b. make a determination about which combination provides more utility. c. have a budget constraint that runs through both combinations. d. pay the same price for the two combinations. Question 2 How much a consumer values two goods relative to one another can be seen by looking at: Select one: a. the slope of the consumer's indifference curves. b....
Indicate the missing amount of different cost items, and prepare a condensed cost of goods manufactured...
Indicate the missing amount of different cost items, and prepare a condensed cost of goods manufactured schedule, an income statement, and a partial balance sheet. Incomplete manufacturing costs, expenses, and selling data for two different cases are as follows: Case   1 2 Direct Materials Used $ 6,300 $   (g) Direct Labour $3,000 $4,000 Manufacturing Overhead $6,000 $5,000 Total Manufacturing Costs (a) $ 16,000 Beginning Work in Process Inventory $1,000 (h) Ending Work in Process Inventory (b) $ 2,000 Sales $22,500...
Person A and B both have the same income, and there are only two goods in...
Person A and B both have the same income, and there are only two goods in the market: good X has the price of $6, good Y has the price of $4. Considering A and B may have different bundles for purchasing good X and Y, but they are on the same budget line with the same MRT and MRS, will their consumer surplus always be the same? or does it depend on the bundles?
A consumer is choosing among bundles of two goods. Their utility function is u = x1...
A consumer is choosing among bundles of two goods. Their utility function is u = x1 − x2. They have cashm = 20 and the prices are p1 = 5 and p2 = 4. Sketch their budget set. Indicate their optimal choice of bundle. Sketch a couple of their indifference curves, including the one that passes through their optimal choice.
Suppose income is 1000 bundles in periods 1 and 2. Suppose if you borrow, you must...
Suppose income is 1000 bundles in periods 1 and 2. Suppose if you borrow, you must pay the interest rate 8%, but if you lend, you only receive the interest rate 5%. Draw the household’s intertemporal budget constraint.
Two metals of equal mass with different heat capacities are subjected to the same amount of...
Two metals of equal mass with different heat capacities are subjected to the same amount of heat. Which undergoes the smaller change in temperature (You must explain/justify your answer)? a) The metal with the higher heat capacity undergoes the smaller change in temperature. b) The metal with the lower heat capacity undergoes the smaller change in temperature. c) Both undergo the same change in temperature. d) You need to know the initial temperatures of the metals. e) You need to...
Exchange rate movement Suppose a basket of goods in Paris cost 133 euros and the same...
Exchange rate movement Suppose a basket of goods in Paris cost 133 euros and the same basket purchased in New York cost $153. A. At what exchange rate between euros and dollars is the cost of the basket of goods the same in each City? B. Now suppose that over the next year inflation in France is expected to be 2% while in the US the forecast is for 6% inflation. What exchange rate do you expect a year from today?  
Suppose that one factory inputs its goods from two different plants, A and B, with different...
Suppose that one factory inputs its goods from two different plants, A and B, with different costs, 4 and 6 each respective. And suppose the price function in the market is decided as p(x,y)= 100−x−y where x and y are the demand functions and 0≤x,y. Then as x= y= the factory can attains the maximum profit,
Suppose that one factory inputs its goods from two different plants, A and B, with different...
Suppose that one factory inputs its goods from two different plants, A and B, with different costs, 4 and 6 each respective. And suppose the price function in the market is decided as p(x,y)= 100−x−y where x and y are the demand functions and 0≤x,y0. Then as x= y= the factory can attains the maximum profit,
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT