Cherise considers movies and concerts to be perfect substitutes. When Cherise maximizes her utility, what will...

Cherise considers movies and concerts to be perfect substitutes. When Cherise maximizes her utility, what will the optimal bundle of movies and concerts probably look like? Explain your reasoning by drawing a graph that includes her indifference curves and a hypothetical budget constraint.

Solutions

Expert Solution

Perfect substitutes are two goods that can be used in place of each other.An IC is the graphical representation of different pairs two goods that can be consumed using given income and all these pairs provide the same satisfaction.The shape of an IC depends upon the Marginal Rate of Substitution.i.e.MRS.This depicts the amount of any good that the consumer is willing to sacrifice for consuming one more unit of the other good.

In case of two goods,being perfect substitutes,the MRS is constant and the slope would also be constant as the consumer would be willing to switch between both goods at a fixed ratio.so if two goods are perfect substitutes,then the indifference curve is a straight line with negative slope.At equilibrium in such cases,the IC would overlap or coincide the budget line .The utility function would also be similar to the budget line in such cases.This has been shown below-

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

An agent considers good 1 and good 2 "perfect substitutes" and thus her preferences can be represented by the utility function u (x,y) = 4x + 2 y.

An agent considers good 1 and good 2 "perfect substitutes" and thus her preferences can be represented by the utility function u (x,y) = 4x + 2 y. The agent starts with $10. Use this information to answer the following questions. (a) What is the slope of this agents indifference curves (i.e. the mrs)? Hint: You do not need to use calculus if you solve for the equation of an indifference in slope-intercept form. (b) What is the maximum price at which...

How can I prove that perfect substitutes utility function and perfect complements utility function are homothetic...

How can I prove that perfect substitutes utility function and perfect complements utility function are homothetic functions?

Braden views Coke (C) and Pepsi (S) as perfect substitutes. His utility function is: U =...

Braden views Coke (C) and Pepsi (S) as perfect substitutes. His utility function is: U = C + S. The corresponding marginal utility for each good is: MUC = 1 and MUS = 1. The price of a 12-ounce can of Coke is $4 and the price of a 12-ounce can of Pepsi is $3. Also, assume that his income is $60. Find Branden's utility-maximizing bundle of Coke and Pepsi. Make sure to show all your work. Show his optimal...

A utility-maximizing consumer believes two goods are Perfect Substitutes u(x, y) = 3x + 4y. She...

A utility-maximizing consumer believes two goods are Perfect Substitutes u(x, y) = 3x + 4y. She pays pY = 2 and pX = 1. Her income is m = 24. Next month the price of good x will rise to pX = 3. Round your final answers to 3 decimal places. What is the EV, CV and Approximate ΔCS?

Suppose that investors treat all bond maturities as perfect substitutes. What is this called and what...

Suppose that investors treat all bond maturities as perfect substitutes. What is this called and what would the yield curve look like if there is no future change in expected change in interest rates? Also, show graphically what would happen to the relative yields in short-term maturities and long-term maturities when the Fed engages in quantitative easing.

2) When an agent maximizes utility given a certain budget, how can we solve the problem...

2) When an agent maximizes utility given a certain budget, how can we solve the problem graphically? Show a general case for ‘Cobb-Douglas preferences’. (In other words, what is the condition that has to be met between budget line and indifference curve in order to maximize an individual’s utility?)

What are the key differences between leasing and borrowing? Are they perfect substitutes? Please explain carefully...

What are the key differences between leasing and borrowing? Are they perfect substitutes? Please explain carefully the last questions about substitutes. thanks

What is the condition on consumer utility that is met when consumers maximize utility

Problem 1 What is the condition on consumer utility that is met when consumers maximize utility (hint: it is a formula). Describe the behavior of the consumer that this formula represents (what are they doing and why is it an optimum). Problem 2 What is the goal of the firm? What is the condition that is met when firms achieve this goal? Describe in words why this condition leads to an optimum for the firm.

What are the 5 factors that the auditor considers when looking for controls that are reliable...

What are the 5 factors that the auditor considers when looking for controls that are reliable and have a high likelihood of operating as intended?

1.What are the 5 factors that the auditor considers when looking for controls that are reliable...

1.What are the 5 factors that the auditor considers when looking for controls that are reliable and have a high likelihood of operating as intended? 2. What 3 factors are considered, in trying to determine whether there is a need for additional detailed test of controls? 3. With respect to accounting estimates, both the AICPA and PCAOB require the auditors to make three determinations. What are they? 4. During the risk assessment phase the auditors gain an understanding of the...

Subjects