Richard has CES preferences u = x1/2 + y1/2 and an income of 600. He pays...

Richard has CES preferences u = x1/2 + y1/2 and an income of 600. He pays pX = 2 and pY = 1. Now pX = 1. Provide an indifference curve diagram and supporting calculations to illustrate and quantify his initial bundle A and final bundle C his Slutsky substitution effect as Bundle B and Hicksian substitution effect as Bundle H.

x^1/2 y^1/2

Expert Solution

Rahul Sunny answered 1 year ago

A maximizing consumer with preferences u = x1/2y1/2 has an income of 40 dollars. Prices are...

A maximizing consumer with preferences u = x1/2y1/2 has an income of 40 dollars. Prices are pX = 1 and pY = 2. At CostCo the price of good X is pX = 0.25. Provide an Indifference Curve Diagram to illustrate and quantify the Income Effect and Substitution Effect for this price change. The horizontal intercept of her compensated budget line is equal to _________

Suppose Amjad’s preferences for pants and shirts are represented by: U(x1,x2 )=x1^2 x2^3, and he faces...

Suppose Amjad’s preferences for pants and shirts are represented by: U(x1,x2 )=x1^2 x2^3, and he faces a linear budget constraint, 2x1+ x2=50. Given that the price of good 1 increases to 4, what are (1) the compensating and (2) equivalent variations? You must set up the Lagrangian and derive the demand functions for this question. Be sure to clearly identify which prices, old or new, are used to derive the values for EV vs. CV, and which utility, old or...

Ethel has preferences over amounts of goods 1 and 2 represented by the utility function u(x1,...

Ethel has preferences over amounts of goods 1 and 2 represented by the utility function u(x1, x2) = (x1)^2 + x2, where x1 denotes how much of good 1 she has and x2 denotes how much of good 2 she has. Write an expression for Ethel’s marginal utility for good 1. Does she like good 1? Explain your answer. Write an expression for Ethel’s marginal rate of substitution at any point. Do Ethel’s preferences exhibit diminishing marginal rate of substitution?...

Suppose an agent has preferences represented by the utility function: U(x1, x2) =1/5 ln (x1) +...

Suppose an agent has preferences represented by the utility function: U(x1, x2) =1/5 ln (x1) + 4/5 ln (x2) The price of x1 is 6 and the price of x2 is 12, and income is 100. a) What is the consumer’s optimal consumption bundle? b) Suppose the price of x2 is now 4, what is the consumer’s new best feasible bundle?

Suppose an agent has preferences represented by the following utility function: u(x1, x2) = 1/4 ln(x1)...

Suppose an agent has preferences represented by the following utility function: u(x1, x2) = 1/4 ln(x1) + 3/4 ln(x2) The price of good x1 is 2, the price of good x2 is 6, and income is 40. a) What is the consumers best feasible bundle (ie, his optimal consumption bundle)? b) Interpret the consumer’s marginal rate of substitution at the best feasible bundle found in part a).

Consider a consumer with preferences represented by the utility function: u(x, y) = x1/4y1/2 Suppose the...

Consider a consumer with preferences represented by the utility function: u(x, y) = x1/4y1/2 Suppose the consumer has income M = 10 and the prices are px=1 and Py = 2. (a) Are goods x and y both desirable? (b) Are there implications for the utility maximization problem for the consumer from your finding in 1a? If so, explain in detail. (c) Derive the utility maximizing bundle.

Consider a consumer with preferences represented by the utility function: u(x; y) = x1/4y1/2 Suppose the...

Consider a consumer with preferences represented by the utility function: u(x; y) = x1/4y1/2 Suppose the consumer has income M = 10 and the prices are px = 1 and py = 2. (a) Are goods x and y both desirable? (b) Are there implications for the utility maximization problem for the consumer from your finding in a? If so, explain in detail.

Question

Richard has CES preferences u = x1/2 + y1/2 and an income of 600. He pays...

Solutions

Expert Solution

Related Solutions