Elle Driver likes pizza (X) and clothing (Y) and her utility is given by U= XY...

Elle Driver likes pizza (X) and clothing (Y) and her utility is given by U= XY . Her income is $20 and the price of food P_x = $ 5 and clothing P_y = $2. -
1. Draw a diagram with Y on the vertical axis and X on the horizontal axis and determine Elle’s optimal basket. Show your work.
2. Elle’s friend, Jules Winnfield, likes Big Kahuna burgers and recently learned of a promotion where if you buy one Kahuna Burger at the full price of $10, the next three burgers are only $5 each. Jules’ income is $40 and the price of all other goods he consumes is $1 per unit.
  1. Draw a budget constraint for Big Kahuna Burgers and all other goods that reflect the situation before the special offer was announced and one for after the special price offer was announced (that is draw 2 budget lines). Put Big Kahuna Burgers on the horizontal axis. Be sure to indicate the intercepts and the slopes of the budget lines.
  2. How will the special promotion on Big Kahuna Burgers affect Jules’ buying behavior? How will your answer depend on the shape of Jules’ indifference curves? Explain and show in the diagram.

Expert Solution

Rahul Sunny answered 1 year ago

Esther consumes goods X and Y, and her utility function is U(X,Y)=XY+Y For this utility function,...

Esther consumes goods X and Y, and her utility function is U(X,Y)=XY+Y For this utility function, MUX=Y MUY=X+1 a. What is Esther's MRSXY? Y/(X + 1) X/Y (X + 1)/Y X/(Y + 1) b. Suppose her daily income is $20, the price of X is $4 per unit, and the price of Y is $1 per unit. What is her best choice? Instructions: Enter your answers as whole numbers. X = Y = What is Esther's utility when her...

Suppose Anne’s utility function for food (X) and clothing (Y) is given by U (X,Y) =...

Suppose Anne’s utility function for food (X) and clothing (Y) is given by U (X,Y) = 4X1/2 + Y and Anne had budget constraint I = PxX + PyY. a. Find Anne’s optimal bundle if Px = 4 and Py = 4 and Anne has I = 60. b. Discuss how the demand for X depends on her income. c. Suppose now that the price of X increases to 8. Find the SE and IE of the price change.

Suppose that a consumer has utility given by U(X, Y ) = XY + 10Y and...

Suppose that a consumer has utility given by U(X, Y ) = XY + 10Y and income of $100 to spend on goods X and Y. The prices of X and Y are both $1 per unit. Use a Lagrangian to solve for the optimal basket of goods. Suppose that the price of X increases to $5 per unit. Use a Lagrangian to solve for the new optimal basket of goods. Find the total effect of the price change on...

Jim’s utility function is U(x, y) = xy. Jerry’s utility function is U(x, y) = 1,000xy...

Jim’s utility function is U(x, y) = xy. Jerry’s utility function is U(x, y) = 1,000xy + 2,000. Tammy’s utility function is U(x, y) = xy(1 - xy). Oral’s utility function is -1/(10 + xy. Billy’s utility function is U(x, y) = x/y. Pat’s utility function is U(x, y) = -xy. a. No two of these people have the same preferences. b. They all have the same preferences except for Billy. c. Jim, Jerry, and Pat all have the same...

Suppose that a consumer’s utility function is U(x, y) = xy . The marginal utilities for...

Suppose that a consumer’s utility function is U(x, y) = xy . The marginal utilities for this utility function are MUx= y and MUy= x. The price of y is Py = 1. The price of x is originally Px = 9 and it then falls to Px = 4. The consumer’s income is I = 72. (15 points) What x-y combination (xA*, yA*) maximizes utility in the original situation where Px = 9? Why? (15 points) What x-y combination (xC*,...

Suppose a consumer's utility function is given by U ( X , Y ) = X...

Suppose a consumer's utility function is given by U ( X , Y ) = X 1 2 Y 1 2. The price of X is PX=8 and the price of Y is PY=5. The consumer has M=80 to spend. You may find that it helps to draw a graph to organize the information in this question. You may draw in the blank area on the front page of the assignment, but this graph will not be graded. a) (2...

Let assume that a consumer has a utility function u(x, y) = xy, and px =...

Let assume that a consumer has a utility function u(x, y) = xy, and px = 1 dollar, py = 2 dollars and budget=50. Derive the followings. (3 points each) 1) Marshallian demands of x and y 2) Hicksian demands of x and y 3) Indirect utility function 4) Expenditure function 5) Engel curve

Given the utility function U ( X , Y ) = X 1 3 Y 2...

Given the utility function U ( X , Y ) = X 1 3 Y 2 3, find the absolute value of the MRS when X=10 and Y=24. Round your answer to 4 decimal places.

Welfare Measures Consider a consumer with utility function of the form u(x,y) = √xy. Where x...

Welfare Measures Consider a consumer with utility function of the form u(x,y) = √xy. Where x is the number of hamburgers and y the number of soft drinks. (a) Find the compensated demands. (b) Calculate the Compensated Variation (CV) when the price of soft drinks increase from $1 to $4. (Assume that the utility at the original price level is equal to 2 and the price of hamburgers is equal to $4) (c) Is the consumer better-off or worse-off after...

Lucy consumes only apples and oranges, and her utility is given by U(X,Y)=5⋅X+8⋅Y, where X denotes...

Lucy consumes only apples and oranges, and her utility is given by U(X,Y)=5⋅X+8⋅Y, where X denotes apples and Y denotes oranges. Lucy has a budget of 1,560, and the price of apples is initially 6 and the price of oranges is 13. Find the optimal amounts of each good that Lucy will buy. X= 260 Y= 0 Now suppose the price of apples changes to 10, now how much of each good will she buy? X= 0 Y= 120 What...

Question