Unit 2C Practice Problems

1. Suppose someone's budget is $780, and it is fully spent on buying Product A. The price of this product is $26. Calculate the price change of Product A if there is a 1.3 times increase in the quantity available to purchase. Enter your answer in the box below, use a minus sign to show a decrease in price, and round to the nearest whole number if necessary. 2. Consider the spending choices of the following consumer: Emily's income is spent on colas and orange sodas, as well as other goods. She considers colas to be a normal good and orange sodas to be a normal good. What will happen to Emily's purchases of these goods if her income decreases? Select the best answer. She will buy more colas and fewer orange sodas.She will buy fewer colas and fewer orange sodas.She will buy more colas and more orange sodas.She will buy fewer colas and more orange sodas. Is the following statement true or false? Select the best answer. The price ratio of coffee to cookies is 1.5, so the marginal utility…

Draw YOUR indifference curve for the consumption of two goods (you pick the goods – be creative!) Make sure to include labels. Why did you choose these two goods? Why do you view these as being a tradeoff? Carefully explain why the indifference curve has the shape you created. (Hint: Discuss the slope. What it means and how it changes) Determine a budget that will be allocated towards your consumption of these two goods. Given the budget, prices for the goods, and your preferences, how will you find the utility-maximizing combination? Give an intuitive answer as well as a graphical answer (make sure to label the graph accordingly).

Take Jeremy’s total utility information in Exercise 6.1, and use the marginal utility approach to confirm the choice of phone minutes and round trips that maximize Jeremy’s utility. 6.1Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either callher on the land-line phone for five cents per minute or he can drive to see her, at a round-trip cost of $2 in gasolinemoney. He has a total of $10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses ahandy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values inTable 6.6, figure out the points on Jeremy’s consumption choice budget constraint (it may be helpful to do a sketch)and identify his utility-maximizing point.

The budget set, or budget constraint, in the graph shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of $18 to spend on brownies and ice cream cones. How much does a brownie cost? $ Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person is utility maximizing. should consume more brownies and fewer ice cream cones. should consume more ice cream cones and fewer brownies. Brownies 18- 16- 14- 12- 10- 8- 6- 4 2. 0 1 2 3 1 A 1 + 4 5 Budget constraint 6 7 8 9 10 11 12 13 14 Ice cream cones

Don’t just copy other answers online.

3. Sam has set aside $480 for entertainment this month, which is golf (x) and/or bowling (z). A round of golf is $40 and a night of bowling is $30. His utility function is U = 3x + 2z. What is his MRS? a. b. c. Solve for the optimal choice of golf and bowling. Draw a graph of the budget line (including intercepts), a few indifference curves, and the optimal choice for Sam.

What would be the CORRECT solution?

The primary goal of very consumer is to maximize satisfaction. Explain, how a consumer achievesequilibrium using:a) Indifference curve analysisb) Marginal Utility theory

Utility Maximization. Suppose that an individual has a utility function given asU =√XYwhere U is the total utility, X is the quantity of good X that is consumed, and Y is the quantity ofgood Y consumed.It follows thatMUxMUy= X/Ywhere MUx is the marginal utility of X and MUy is the marginal utility of Y.The individual’s budget constraint isI = PxX + PyYwhere I is income, Px is the price of good X, and Py is the price of good Y.Suppose that Px = 2, Py = 1, and I = 100. How much of X and Y does this individual purchase?

3. Assuming a price of X (Px) and a price of Y (Py) are $ 1 each, the individual's income is $ 8 per time period and all of it is spent. The Schedule Utility Marginal for items X and Y for individuals is: Specify : a. How should this individual spend his income in order to maximize total utility? b. What is the total amount of utility received by an individual when it is in equilibrium?

The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns Consumption when Old 50,000 income. When old, she is retired and earns no income. 25,000 D 20,000 40,000 Consumption when Young At two of the four labeled points, Hannah is equally happy. Identify those two points. Of the four labeled points, which is (are) affordable to Hannah? Hannah's optimum is at point How much income does Hannah earn when she is young? What is the value of the interest rate that Hannah earns on her saving? If Hannah chose to spend $30,000 on consumption when young, then how much could she spend on consumption when old? Hannah could afford to be at point A if the interest rate were to

please give answer step by step

U(x, y) = xayb A consumer maximises utility subject to a budget constraint M = Pxx+Pyy Where px is the price of good x, py is the price of good y and M is the budget available. a. Derive an expression for the marginal utility of x. Under what condition is the marginal utility diminishing. b. Derive an expression for the marginal utility of y. Under what condition is the marginal utility diminishing.

A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 15 and the marginal utility of Y is 8. The unit price of X is $3 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should Multiple Choice a. decrease consumption of product X and increase consumption of product Y. b. increase consumption of product X and increase consumption of product Y. c. decrease consumption of product Y and increase consumption of product X. d. stick with the current consumption mix because it yields maximum utility.

Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $6 and each order of fries costs $3. When deciding how much of each good to buy, Rick knows that 2 burgers and 4 orders of french fries will give him a utility of 8. At his utility-maximizing point, Rick's utility is:

Indicate the answer choice that best completes the statement or answers the question. 1. Ahmed spends all of his money on movie tickets and groceries. Suppose Ahmed is presented with two options: A and B. Option A gives him a voucher of $X that he can only spend on groceries. Option B gives him SX that he can spend on either or both of the goods. Which of the following is correct assuming Ahmed is indifferent between the two options? a. Ahmed spends at least $X on groceries. b. Ahmed spends less than SX on groceries. c. Ahmed must be indifferent between movie tickets and groceries. d. Ahmed spends his entire income on movie tickets.

On Sunday afternoon, you have arrived for brunch, where you can choose from only two types of dishes: snacks for $3 and drinks for $2. You have to spend $10, otherwise the money will disappear. Complete the tables below.   Include the whole procedure and formulas.   Explain what combination of dishes would give you the greatest total utility. why?

Reid has the following utility function. U = 24m1/3d1/2  where U is Reid's total utility, m is the quantity of muffin consumed, and d is the quantity of doughnuts consumed. Reid has a budget of $25.00, the price of a muffin is $1.00 and the price of doughnut is $0.60. a. What is the equation for the marginal utility Reid receives from muffins? What is the equation for the marginal utility Reid receives from doughnuts? b. What is the equation for the marginal rate of substitution, MRSm,d? Is Reid's utility function subject to the law of the diminishing marginal rate of substitution? c. Reid has a $15.00 gift card that can only be used to buy doughnuts and $10.00 cash to spend on either of the two goods. The price of a doughnut is $0.60 and the price of a muffin is $1.00. Using equations, determine, determine Reid's optimal combination of muffins and doughnuts given the cash and gift card.

34) Suppose that left shoes and right shoes must be purchased separately. Ingrid needs an equal number of each type of shoe and has a budget of $100 for shoes. Left shoes always cost $1. If right shoes cost $19 each, how many of each will Ingrid buy? If the price of right shoes increases to $49 each, how will Ingrid react? Explain your answer by drawing the indifference curves-budget lines. 35) Johnny has $100 to spend on books and all other goods. Books cost $20 each and Johnny is at equilibrium consuming 3 books and $40 worth of other goods. Johnny's grandmom wants to give Johnny either a book or $20 for his birthday. Which gift does Johnny prefer? Explain using an indifference map and budget lines.