urgently need At least during 2020 international travel and vacationing was very re-stricted. National travel was also restricted as was things that one usuallydoes on a vaction, e.g. going to a restaurant. Let's assume that a typicalconsumer has the following utility function over going on a vacation trip(v) and other consumption goods (0):U(v, 0) = v0.10,0.90Assume that the relative price of a vacation trip in terms of other goodswas equal to one (p = = 1) and the yearly disposable income of theaverage consumer was I= 300, 000kr.(a) Solve the consumer's utility maximization problem. How much wouldshe had spent on vacationing and other goods if there had been nopandemic? What would her utility have been?(b) The restrictions to travel during the pandemic could be expressed inthe way that the average consumer could not (was not allowed) tospend more than 5000kr (or equivalently consume more than 5000units of v). If we assume that both income and the relative price ofvacationing was unchanged during the pandemic. How much wouldthe average consumer spend on vacationing and on other goods (giventhat she uses all her income)? What would her utility have been? Il-lustrate the consumer's utility maximization problem with and with-out the restriction on travel in a diagram, using the concepts of abudget constraint and indifference curves.(c) Assume that the authorities instead of introducing restrictions hadput a tax on traveling that had reduced the demand for travel to thesame level as the restriction (u = 5000). How high would the price oftravel had been? How high would the tax have been?(d) If instead income had been taxed (and the prices had been un-changed), by how much would the disposable income have to changeso that the consumer would reach the same utility level as with therestrictions in place? Calculate the income change which is equiva-lent to imposing the restriction (we may call this number the "cost"of the pandemic for the average consumer).

Answered: (a) Solve the consumer's utility…

(a) Solve the consumer's utility maximization problem. How much would she had spent on vacationing and other goods if there had been no pandemic? What would her utility have been?

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 4CQ

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