With good Y on the y-axis and coffee on the x-axis, (a) Using indifference curves and...

With good Y on the y-axis and coffee on the x-axis,

(a) Using indifference curves and budget lines, illustrate three utility-maximizing equilibrium points for Maxwell whose income elasticity of demand for coffee is zero.

(b) Is good Y normal or inferior to Maxwell?

(c) Explain whether you agree or disagree with the following statement: At each of the three equilibrium points in part (a), MUx/Px = MUy/Py and the marginal utility of money (l) is constant.

Expert Solution

(a) Income elasticity of demand for coffee is zero which says that quantity demanded of coffee does not change even if your income changes. I have mapped three budget line with three IC curves named as MC1, MC2, MC3. MC1 shows you are consuming Qc level of coffee and Qy3 level of Good Y. MC1 shows you are consuming Qc level of coffee and Qy2 level of Good Y. MC1 shows you are consuming Qc level of coffee and Qy1 level of Good Y.(b) Normal good is that good whose consumption declines as prices rises and vice versa. According to this, Good Y is a normal good whose consumption changes as income changes (changes in budget).

(c) Marginal utility of money is the utility a consumer receives from the consumption of a good when he spends one rupee on it. Thus as income rises or falls the budget line falls and on a specific budget line one IC curve shows a equilibrium point on which consumer have the maximum utility. The situation given would have true if the IC curve lie on the same budget line, but Differenct IC curve on different budget line would never give same satisfaction level. So this is false.

Rahul Sunny answered 1 year ago

Good Y is on the vertical axis and good X is on the horizontal axis. If...

Good Y is on the vertical axis and good X is on the horizontal axis. If the slope of the indifference curve is steeper than the slope of the budget line then:MRS < −PX/PY.the consumer is willing to give up more of good Y to get additional units of good X.MRS < PX/PY.the consumer’s utility is maximized.the consumer is willing to give up more of good X to get an additional units of good Y.

Consider two goods, x and y. Using budget lines and indifference curves show that a sales...

Consider two goods, x and y. Using budget lines and indifference curves show that a sales tax on good x is inferior to an income tax that yields the same amount of revenue.

6. Consider two goods, x and y. Using budget lines and indifference curves show that a...

6. Consider two goods, x and y. Using budget lines and indifference curves show that a sales tax on good x is inferior to an income tax that yields the same amount of revenue I need graphs too not just explanations of words please. Thank you :)

Good X is a normal good. Use indifference curves and budget lines to show the substitution...

Good X is a normal good. Use indifference curves and budget lines to show the substitution and income effects of a price decrease for Good X. Put “expenditures on other goods” on the Y-axis, and clearly label all lines and curves. Make sure your diagram clearly shows the income effect and the substitution effect, and that you indicate which is the income effect and which is the substitution effect. b. Give a short one or two sentence explanation of what...

Draw indifference curves with equation (x + 2) (y + 1) = a, where the values...

Draw indifference curves with equation (x + 2) (y + 1) = a, where the values a = 6, 8, and 10

When the indifference curve with Good A on the vertical axis and Good B on the...

When the indifference curve with Good A on the vertical axis and Good B on the horizontal axis is tangential to the budget line, then at that point, the marginal rate of substitution of Good A for Good B is equal to the ratio of the price of Good A and Good B (PA/PB) True False The rate at which one input can be exchanged for another input without altering the level of output is called the Marginal product curve...

If good X is measured on the horizontal axis and good Y on the vertical, what...

If good X is measured on the horizontal axis and good Y on the vertical, what can you say about the preferences of someone whose indifference curves are parallel to the Y axis? positively sloped with more desirable indifference curves as one moves to the right? negatively sloped with more desirable indifference curves as one moves to the left? L-shaped with one line of the L shape parallel to X axis and the other line of the L shape parallel...

Suppose your indifference curves are all described by equations of the form x y ¼ constant,...

Suppose your indifference curves are all described by equations of the form x y ¼ constant, with a different constant for each indifference curve. a. Show that for any point P ¼ (x, y), the indifference curve through P has slope −y/x at P. (This requires calculus. If you don’t know enough calculus, you can just pretend you’ve solved this part and go on to part (b).) b. Suppose that your income is $40, the price of X is $1,...

Suppose the indifference curves of a perfect substitutes agent have a slope of -9/7. Good x...

Suppose the indifference curves of a perfect substitutes agent have a slope of -9/7. Good x is the numéraire. What would ?? need to be in order to create the “degenerate case” (whereby the agent is indifferent between everything on his budget line)?

Draw two indifference curves for each of the following cases, with fish on the horizontal axis...

Draw two indifference curves for each of the following cases, with fish on the horizontal axis and meat on the vertical axis. Label the two indifference curves U1 and U2, where U2 represents the greatest utility. In each case, what, if anything, you can say about the consumer’s MRS? a. John likes eating both fish and meat, but he likes a dditional amounts of either less after several servings. b. Reyna likes eating meat but she can take or leave...

Question