bob's perferences over goods (x) and (y) are shown by U(x,y) = 2xy. his income is...

bob's perferences over goods (x) and (y) are shown by U(x,y) = 2xy. his income is 100.

A) Calculate the optimal basket when Px = $50 and Py = $20. show your work

B) Calculate his income and substituion effects ( if necessary, round two decimal places) if P falls to $40. show your work

C) is good (x) normal or inferior? supprt/explain your answer

D) Solve for the compensating variation. Explain what the value represents. show your work.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Leon consumes two goods, X and Y. His utility function is given by U(X,Y) = 56XY....

Leon consumes two goods, X and Y. His utility function is given by U(X,Y) = 56XY. The price of X is $14 a unit; the price of Y is $8 a unit; and Leon has $672 to spend on X and Y. a. Provide the equation for Leon’s budget line. (Your answer for the budget line should be in the form Y = a – bX, with specific numerical values given for a and b.) b. Provide the numerical value...

Ron consumes two goods, X and Y. His utility function is given by U(X,Y) = 33XY....

Ron consumes two goods, X and Y. His utility function is given by U(X,Y) = 33XY. The price of X is $11 a unit; the price of Y is $4 a unit; and Ron has $352 to spend on X and Y. a. Provide the equation for Ron’s budget line. (Your answer for the budget line should be in the form Y = a – bX, with specific numerical values given for a and b.) b. Provide the numerical value...

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...

A consumer spends all of his income only on two goods, X and Y. His utility...

A consumer spends all of his income only on two goods, X and Y. His utility function is given by U=XY. The price of good X is $P and the price of good Y is $2. His income is $400. (4) Derive the PCC (price consumption curve) of this consumer as the price of good X changes . (3) Derive this consumer’s demand function for good X. (3) As the price of good X falls, this consumer’s demand becomes less...

A consumer spends all of his income only on two goods, X and Y. His utility...

A consumer spends all of his income only on two goods, X and Y. His utility function is given by U=XY. The price of good X is $P and the price of good Y is $2. His income is $400. Derive the PCC (price consumption curve) of this consumer as the price of good X changes . Derive this consumer’s demand function for good X. As the price of good X falls, this consumer’s demand becomes less elastic. True or...

An individual has the utility function u = min (x, y). His income is $ 12....

An individual has the utility function u = min (x, y). His income is $ 12. Initially, the prices were px = 4 and py = 1, and the individual consumed the basket x = y = 2.4. Then, px increases to $ 6 (py does not change), and the individual now consumes the basket x = y = 1.71. a) Calculate the compensatory variation of this price change. b) Calculate the equivalent variation of this price change. c) On...

Your utility function over x and y is U ( x , y ) = l...

Your utility function over x and y is U ( x , y ) = l n ( x ) + 0.25 y. Your income is $20. You don’t know the prices of x or y so leave them as variables (p x and p y). a) (8 points) Find x*, your demand function for x. Find y*, your demand function for y. b) (10 points) Find the cross-price elasticity of demand for x (E x ∗ , p y:...

Jones spends all his income on two goods: X and Y. The price of good X...

Jones spends all his income on two goods: X and Y. The price of good X is PX = 15. The quantity of good X consumed is X = 20. The price of good Y is PY = 25 and the quantity of good Y consumed is Y = 30. A) Based on Jones's consumption choices, what is his income? B) If the prices next year will be PX = 9 and PY = 45, and Jones's income will be...

A consumes two goods, x and y. A ’s utility function is given by u(x, y)...

A consumes two goods, x and y. A ’s utility function is given by u(x, y) = x 1/2y 1/2 The price of x is p and the price of y is 1. A has an income of M. (a) Derive A ’s demand functions for x and y. (b) Suppose M = 72 and p falls from 9 to 4. Calculate the income and substitution effects of the price change. (c) Calculate the compensating variation of the price change....

A consumer purchases two goods, x and y and has utility function U(x; y) = ln(x)...

A consumer purchases two goods, x and y and has utility function U(x; y) = ln(x) + 3y. For this utility function MUx =1/x and MUy = 3. The price of x is px = 4 and the price of y is py = 2. The consumer has M units of income to spend on the two goods and wishes to maximize utility, given the budget. Draw the budget line for this consumer when M=50 and the budget line when...

Subjects