5. Consider Paola willingness to pay to obtain a specific good and her willingness to accept to trade the same good. Let her utility function be given by u(x1, x2) = x+ 0.5 0.5 a) Briefly explain why the willingness to pay and the willingness to accept for the same person over the same good may diverge. b) Assume that her wealth is given by w = 200 , and the price of good 2 is defined as P2 = 2, so that x = 100, if the demand for good 1 is zero. Derive the maximum willingness to pay and the minimum willingness to accept for 25 units of good 1, and identify which measure of value is larger? c) How does your answer change if instead we considered only 1 unit of good1?

5. Consider Paola willingness to pay to obtain a specific good and her willingness to accept to trade the same good. Let her utility function be given by u(x1, x2) = x+ 0.5 0.5 a) Briefly explain why the willingness to pay and the willingness to accept for the same person over the same good may diverge. b) Assume that her wealth is given by w = 200 , and the price of good 2 is defined as P2 = 2, so that x = 100, if the demand for good 1 is zero. Derive the maximum willingness to pay and the minimum willingness to accept for 25 units of good 1, and identify which measure of value is larger? c) How does your answer change if instead we considered only 1 unit of good1?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter6: Demand Relationships Among Goods

Section: Chapter Questions

Problem 6.9P

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