A) -Rhea's MRS is unaffected by the price change, -Rhea's optimal budget decision rule is unaffected by the price change, -Rhea's budget constraint is unaffected by the price change, - All of the above are changed B) -Rhea buys less milk at her new consumer equilibrium, -Rhea buys more milk at her new consumer equilibrium, -Rhea buys the same amount of milk at her new consumer equilibrium, -Rhea buys no milk at her new consumer equilibriumC) -Rhea buys less bread at her new consumer equilibrium, -Rhea buys more bread at her new consumer equilibrium, -Rhea buys the same amount of bread at her new consumer equilibrium, -Rhea buys no bread at her new consumer equilibriumD) -Her utility increases, -Her utility decreases, -Her utility is unchanged, -Her utility could increase or decrease Rhea is determining how many gallons of milk (M) and loaves of bread (B) to purchase. Use theinformation in italics to answer the bolded question below:• Rhea's marginal utility function for milk:0.5M - 12/2MUM=MUBRhea's marginal utility function for bread:0.5M / B - 1²/2B2=• Rhea has $60 to spend on bread and milk.• The price of milk (Pm) is now $2/gallon of milk, which is $1 less per gallon than the previous price.• The price of bread (Pb) is $1/loaf of bread.• For the sake of computation, assume that bread is the horizontal axis good (i.e., good X) and milk isthe vertical axis good (i.e., good Y).Let's say the price of milk drops to $2.00/gallon.Which of the following components of Rhea's consumer choice problem are unaffected bythe decrease in the price of milk? [Select]Compared to when Pm = $3/gallon, how does the decrease in the price of milk impactRhea's optimal consumption of milk at her new consumer equilibrium?[Select]îCompared to when Pm = $3/gallon, how does the decrease in the price of milk impactRhea's optimal consumption of bread at her new consumer equilibrium?[Select]How does the decrease in the price of milk impact Rhea's utility?[Select]

Here we have 2 goods milk (M) and breads (B). And the corresponding marginal utilities are: MU_M…

Answered: A) -Rhea's MRS is unaffected by the…

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter5: Consumer Choice: Individual And Market Demand

Section: Chapter Questions

Problem 3DQ

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Question

A) -Rhea's MRS is unaffected by the price change, -Rhea's optimal budget decision rule is unaffected by the price change, -Rhea's budget constraint is unaffected by the price change, - All of the above are changed

B) -Rhea buys less milk at her new consumer equilibrium, -Rhea buys more milk at her new consumer equilibrium, -Rhea buys the same amount of milk at her new consumer equilibrium, -Rhea buys no milk at her new consumer equilibrium

C) -Rhea buys less bread at her new consumer equilibrium, -Rhea buys more bread at her new consumer equilibrium, -Rhea buys the same amount of bread at her new consumer equilibrium, -Rhea buys no bread at her new consumer equilibrium

D) -Her utility increases, -Her utility decreases, -Her utility is unchanged, -Her utility could increase or decrease

Rhea is determining how many gallons of milk (M) and loaves of bread (B) to purchase. Use the
information in italics to answer the bolded question below:
• Rhea's marginal utility function for milk:
0.5M - 12/2
MUM
=
MUB
Rhea's marginal utility function for bread:
0.5M / B - 1²/2
B2
=
• Rhea has $60 to spend on bread and milk.
• The price of milk (Pm) is now $2/gallon of milk, which is $1 less per gallon than the previous price.
• The price of bread (Pb) is $1/loaf of bread.
• For the sake of computation, assume that bread is the horizontal axis good (i.e., good X) and milk is
the vertical axis good (i.e., good Y).
Let's say the price of milk drops to $2.00/gallon.
Which of the following components of Rhea's consumer choice problem are unaffected by
the decrease in the price of milk? [Select]
Compared to when Pm = $3/gallon, how does the decrease in the price of milk impact
Rhea's optimal consumption of milk at her new consumer equilibrium?
[Select]
î
Compared to when Pm = $3/gallon, how does the decrease in the price of milk impact
Rhea's optimal consumption of bread at her new consumer equilibrium?
[Select]
How does the decrease in the price of milk impact Rhea's utility?
[Select]

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