A consumer earns 40 dollars of income which can be saved or spent. The graph below shows the consumer's budget constraint if the consumer could save money in a bank account, earning zero interest. 60 55 50 45 40 35 30 25 20 15 10 0 10 20 60 40 30 50 Current Consumption 14. On the graph, draw an indifference curve showing the consumer choosing to save $10 for future consumption. 15. On the graph, include a new budget line showing how the budget constraint changes for the consumer if the consumer could earn 25% on any savings. Future Consumption 5 0

A consumer earns 40 dollars of income which can be saved or spent. The graph below shows the consumer's budget constraint if the consumer could save money in a bank account, earning zero interest. 60 55 50 45 40 35 30 25 20 15 10 0 10 20 60 40 30 50 Current Consumption 14. On the graph, draw an indifference curve showing the consumer choosing to save $10 for future consumption. 15. On the graph, include a new budget line showing how the budget constraint changes for the consumer if the consumer could earn 25% on any savings. Future Consumption 5 0

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.4P

See similar textbooks

Similar questions

Take Jeremys 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 Jeremys utility.
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…
Jane is your typical economics student who consumes two goods: economics textbook and coffee. Jane’s income is $40. She can spend it all on books and get 5 or she can spend it all on coffee and get 20 cups.Given this information, construct the equation for Jane’s budget line and plot it (put books on the x–axis and coffee on the y–axis) The following are bundles that Jane can afford with her income (as shown in Table 3.1):Table 3.1BooksCoffee 1- -0 -8 2- Fill in the blanks in the table with quantities that can exhaust Jane’s income. Assume that prices are the same as used in part (a). If marginal utility of a book is 20, what is the marginal utility of coffee if she is maximizing utility?
1. 1. Rummy has $40 a week to spend on burger and cake. The price of burger is $5 and the price of cake is $2 a slice. a. Calculate Rummy's real income in terms of cake. b. Calculate the relative price of cake in terms of burger. Calculate the equation for Amy's budget line. d. If Rummy's income increases to $60 a week and the price of burger and cake remain unchanged describe the change of his budget line. e. If the price of cake doubles while the price of burger remains at $5 and Rummy's income remains at $40 describe the change in his budget line. f. If Rummy's income is $20 and all the money spend to purchase burger, how many burger he can purchase? 2. Consider Competitive Market where Jamil is selling flowers. If Market Price is $50 answer the following FC Flowers 6 TC 445 485 300 7 8 9 530 580 10 11 635 695 Questions: i. How many flowers should he sell? ii. Calculate Jamil's Profit or Loss. iii. Find the Price at which he will shut down in the short run. iv. Find the Price at…
Linda loves buying shoes and going out to dance. Her utility function for pairs of shoes, S, and the number of times she goes dancing per month, T, is U(S + T) = 2ST, so Mus = 2T and Mut = 2S. It costs Linda $50 to buy a new pair of shoes or to spend an evening out dancing. Assume that she has $500 to spend on shoes and dancing What is the equation for her budget line? Draw it (with T on the vertical axis), and label the slope and intercepts. What is Linda’s marginal rate of substitution? Explain. Use math to solve for her optimal bundle. Show how to determine this bundle in a diagram using indifference curves and a budget line
Linda loves buying shoes and going out to dance. Her utility function for pairs of shoes, S, and the number of times she goes dancing per month, T, is U(S,T) = 2ST, so MUs = 2T and MUT = 2S. It costs Linda $50 to buy a new pair of shoes or to spend an evening out dancing. Assume that she has $500 to spend on shoes and dancing. A. What is the equation for her budget line? Draw it (with T on the vertical axis) and label the slope and intercepts. B. What is Linda's marginal rate of substitution? Explain. C. Use math to solve for her optimal bundle. Show how to determine this bundle in a diagram using indifference curves and a budget line.
A. Explain, using an indifference curve and a budget line, the concept of consumer equilibrium. B. What are the assumptions on which indifference curve theory is based?
Eren’s two main hobbies are taking vacations overseas (V) and eating expensivemeals (M). His utility function is given as: U(V,M) = V2MLast year, the average price of taking a vacation overseas was US$200 and the averageprice of an expensive meal is $50. However, due to supply problems in Onions, theaverage price of an expensive meal rose to $75. The average price of a vacation did notchange. His income, which is $1500, did not change. Calculate the change in consumer surplus from consuming the expensivemeals considering the price change (Hint: you need to compare his optimalconsumption bundle before and after the price change to get the change in CS).
Paul derives utility from cups of coffee (C) and donuts, which he eats a dozen at a time (D). His utility function is: U = √C.D d. Show that Paul's income will not permit him to reach the =20 indifference curve. e. If Paul buys five dozen donuts, how many cups of coffee can he buy and what is his utility? f. Use a carefully drawn graph to show that the utility calculated in part e is the highest Paul can achieve with his $200.
please urgent EXERCISE 2 Ravi has £21 to spend on pastries and biscuits. If he spends all the money on pastries, he can afford 15 pastries. The slope of Ravi’s budget line (assuming his pastries consumption is measured on the horizontal axis and his biscuits consumption is measured on the vertical axis) is -3.5 (3.5 in absolute terms). a) Calculate the price of a pastry and the price of a biscuit. Write down Ravi’s budget equation and draw the corresponding budget line. Mark the consumption bundle mentioned above. In your graph, clearly label the axes, the budget line, and calculate the coordinates of the points of intersection of the budget line with each axis. Interpret each of those points. b) Discuss how Ravi’s budget set would change if his budget doubles. Show the relevant changes graphically. How could the price of a pastry increase so that Ravi could still afford to buy 15 pastries? c) Discuss how Ravi’s budget constraint would change if the government imposed a tax of £0.50…
If this consumer has $13.00 to spend on cans of beer and slices of pizza in any given week, then what is the optimal combination of beer and pizza for the consumer to buy to maximize utility?
A consumer has a utility function U(X,Y ) = X1/2 Y1/2 . Prices of the goods are pX = £10 and pY = £5, respectively, and the consumer has income M = £200 to spend on X and Y. Currently, she buys 2 units of good X and spends the rest of her income on good Y.a) Determine this consumer’s current utility level. b) Computetheconsumer’smarginalutilitiesofgoodsXandY. c) Explain why the consumer’s current consumption of goods X and Y is not optimal. Should she substitute X for Y or vice versa? The consumer’s marginal rate of substitution is MRS = Y/X.d) Determine this consumer’s optimal consumption of both goods. e) By how much does the consumer’s utility increase when she consumes the optimal bundle?