Question
In: Economics
1. A) If the consumer is consuming exactly two goods, and she is always spending all...
1. A) If the consumer is consuming exactly two goods, and she is always spending all of her money, can both of them be inferior goods?
B) Show that perfect substitutes are an example of homothetic preferences.
C) Show that Cobb-Douglas preferences are homothetic preferences.
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
If a consumer spends all her income on two goods X and Y , then she...
If a consumer spends all her income on two goods X and Y , then
she can just afford either consumption bundle (5, 10) or (10, 7.5).
Write the equation of her budget line.
Consider the utility function of a consumer who obtains utility from consuming only two goods, ?1...
Consider the utility function of a consumer who obtains utility
from consuming only two goods, ?1 and ?2 , in fixed proportions.
Specifically, the utility of the consumer requires the consumption
of two units of ?2 for each unit of ?1.
i. Report the mathematical expression of the utility function of
the consumer.
ii. Provide a diagram of the corresponding indifference
curves.
iii. Provide at least one example and economic intuition.
Suppose that the consumer has available income equal to...
Consider the utility function of a consumer who obtains utility from consuming only two goods, ?1...
Consider the utility function of a consumer who obtains utility
from consuming only two goods, ?1 and ?2 , in fixed proportions.
Specifically, the utility of the consumer requires the consumption
of two units of ?2 for each unit of ?1. A.
i. Report the mathematical expression of the utility function of
the consumer.
ii. Provide a diagram of the corresponding indifference
curves.
iii. Provide at least one example and economic intuition.
Suppose that the consumer has available income equal...
Suppose initially a consumer is in equilibrium, consuming a certain amount of two goods: good one...
Suppose initially a consumer is in equilibrium, consuming a
certain amount of two goods: good one is relatively time-intensive
and the other relatively goods-intensive. Consider each change
below separately. What does the model predict about the consumption
of each good? Use the model to explain.
An increase in income taxes.
Marriage. Assume that prior to the marriage the two
individuals lived separately.
Children
Consumer A regards the two goods as perfect complements, always wanting 2 units of good 1...
Consumer A regards the two goods as perfect complements, always
wanting 2 units of good 1 for every unit of good s, where as B
regards 4 units of good s and 3 units of good 2 as perfect
substitutes. Initially, A has 60 units of good 1 and 75 units of
good 2, and B has 140 units of good 1 and 25 units of good 2. a)
Draw an Edgeworth box (put good 1 on the horizontal axis)...
When the price of a good falls, we know exactly what will happen to consumer spending...
When the price of a good falls, we know exactly what will
happen to consumer spending on that good. True or False?
Explain.
Is the demand for hospital services inelastic or elastic?
Explain.
Briefly explain why indifference curves cannot intersect.
If nurse practitioners and primary care physicians were perfect
substitutes, what would you expect to be their wage
differential?
Other things being equal, if the demand for physician services
suddenly became more inelastic, how would that affect consumer
surplus?
In a closed economy with no foreign trade, spending on consumer goods (C) is related to...
In a closed economy with no foreign trade, spending on
consumer goods (C) is related to national income (Y) according to
the table below : -
National Income (Y) (£ billion)
120
160
200
240
280
Consumption (C) (£ billion)
80
110
140
170
200
Injections (J) (£ billion)
Aggregate Demand (AD) (£ billion)
Assuming that the government is spending £30 billion per year on
the infrastructure and firms are investing £30 billion
(a) What is the equilibrium level of...
Goods 1 and 2 are perfect complements for Kane. He always consumes these two goods in...
Goods 1 and 2 are perfect complements for Kane. He always
consumes these two goods in the ratio of 2 units of good 2 for
every unit of good 1. The price of good 1 is $1.00, and the price
of good 2 is $4.00. Kane has $936.00 to spend. part 1) The
substitution effect of a change in the price of good 2 from $4.00
to $6.00 will reduce the demand for good 2 by _______ units. part
2)...
[5] Aggregate, or total, spending is the combined spending for new goods and services of all:...
[5] Aggregate, or total, spending is the combined spending for
new goods and services of all:
A) households.
B) households and businesses.
C) households, businesses, and government units.
D) households, businesses, government units, and foreign
buyers.
[6] The sector of the economy that purchases the most goods and
services is the:
A) foreign sector.
B) business sector.
C) household sector.
D) government sector.
[7] Household spending:
A) is based primarily on unearned income.
B) tends to fluctuate widely as the...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is
consuming two goods (X and Y). The
government is considering two alternative taxation policies: (a)
taxing good X; (b) putting a lump-
sum tax on A. By using a graphical analysis, compare these two
taxation policies in terms of
“excess burden”.
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