Ashwin likes to spend her spare time in summer in one of two ways: (i) watching cricket (x) at Sydney Cricket Ground or (ii) watching movies (y) at Ritz cinema. In choosing how to entertain herself, she considers both constraints---money and time. Part I Ashwin has 48 hours of spare time in a month. A cricket game runs for 8 hours, while each visit to the movies takes up 4 hours. Each month, Ashwin also has $324 to spend on entertainment. A ticket for a cricket game costs $45. A visit to the movie costs $36. Write down Ashwin's budget constraint and time constraint. (a) (b) Draw Ashwin's budget constraint and time constraint in a clearly labelled diagram. Label all axis intercepts in the two axes (x and y) and the point of intersection of the two budget lines. Shade the set of bundles that Ashwin can afford (those satisfying both his time and money constraints) with vertical lines. Part II Sam---a friend of Ashwin---has the same amount of spare time (48 hours per month) and same amount of money to spend on entertainment ($324 per month). He faces the same constraints as Ashwin. However, Ashwin and Sam have slightly different preferences over cricket (x) and movies (y). • Sam's utility function: U(x,y) = x + y • Ashwin's utility function: V(x,y) = min{x,y} Each maximizes their own utility. a) What is/are the utility maximizing bundle/s for Sam? b) What is/are the utility maximizing bundles for Ashwin?
Ashwin likes to spend her spare time in summer in one of two ways: (i) watching cricket (x) at Sydney Cricket Ground or (ii) watching movies (y) at Ritz cinema. In choosing how to entertain herself, she considers both constraints---money and time. Part I Ashwin has 48 hours of spare time in a month. A cricket game runs for 8 hours, while each visit to the movies takes up 4 hours. Each month, Ashwin also has $324 to spend on entertainment. A ticket for a cricket game costs $45. A visit to the movie costs $36. Write down Ashwin's budget constraint and time constraint. (a) (b) Draw Ashwin's budget constraint and time constraint in a clearly labelled diagram. Label all axis intercepts in the two axes (x and y) and the point of intersection of the two budget lines. Shade the set of bundles that Ashwin can afford (those satisfying both his time and money constraints) with vertical lines. Part II Sam---a friend of Ashwin---has the same amount of spare time (48 hours per month) and same amount of money to spend on entertainment ($324 per month). He faces the same constraints as Ashwin. However, Ashwin and Sam have slightly different preferences over cricket (x) and movies (y). • Sam's utility function: U(x,y) = x + y • Ashwin's utility function: V(x,y) = min{x,y} Each maximizes their own utility. a) What is/are the utility maximizing bundle/s for Sam? b) What is/are the utility maximizing bundles for Ashwin?
Chapter3: Scarcity, Trade-offs, And Production Possibilities
Section: Chapter Questions
Problem 7P
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Transcribed Image Text:Ashwin likes to spend her spare time in summer in one of two ways:
(i) watching cricket (x) at Sydney Cricket Ground or
(ii) watching movies (y) at Ritz cinema.
In choosing how to entertain herself, she considers both constraints---money and time.
Part I
Ashwin has 48 hours of spare time in a month. A cricket game runs for 8 hours, while each
visit to the movies takes up 4 hours. Each month, Ashwin also has $324 to spend on
entertainment. A ticket for a cricket game costs $45. A visit to the movie costs $36.
Write down Ashwin's budget constraint and time constraint.
(a)
(b)
Draw Ashwin's budget constraint and time constraint in a clearly labelled
diagram. Label all axis intercepts in the two axes (x and y) and the point of intersection of the
two budget lines. Shade the set of bundles that Ashwin can afford (those satisfying both his
time and money constraints) with vertical lines.
Part II
Sam---a friend of Ashwin---has the same amount of spare time (48 hours per month) and
same amount of money to spend on entertainment ($324 per month). He faces the same
constraints as Ashwin. However, Ashwin and Sam have slightly different preferences over
cricket (x) and movies (y).
• Sam's utility function: U(x,y) = x + y
• Ashwin's utility function: V(x,y) = min{x,y}
Each maximizes their own utility.
a) What is/are the utility maximizing bundle/s for Sam?
b) What is/are the utility maximizing bundles for Ashwin?
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