Assume Reginald has the option of choosing between two goods, X and Y, both of which have a positive utility and the choices are reflected in his indifference map, as illustrated in the diagram below: Qy 10 B 7.5 A 5 U2 U1 Qx 4 Answer the following questions based on the initial price of commodities X and Y and Reginald's first income level: 1. Characterize the indifference curve/s of Reginald. 2. If the Reginald's income is P200, what is the price of good X? Of good Y? 3. Given the prices of goods X and Y, determine the equation of the budget line in its functional form. Interpret the value of the slope. 4. What is the marginal rate of substitution at point A? Interpret this value. 5. What condition should be met in order for the consumer to maximize satisfaction in the consumption of good X and good Y? Provide the calculation that satisfies the equilibrium condition. 6. What is Molly's optimal bundle of consumption? 7. Could the marginal rate of substitution be 5 at point C? Justify your answer. 8. If the consumer's income is held constant, how would the prices of goods X and Y have to change to make point C on U, the consumer's equilibrium?
Assume Reginald has the option of choosing between two goods, X and Y, both of which have a positive utility and the choices are reflected in his indifference map, as illustrated in the diagram below: Qy 10 B 7.5 A 5 U2 U1 Qx 4 Answer the following questions based on the initial price of commodities X and Y and Reginald's first income level: 1. Characterize the indifference curve/s of Reginald. 2. If the Reginald's income is P200, what is the price of good X? Of good Y? 3. Given the prices of goods X and Y, determine the equation of the budget line in its functional form. Interpret the value of the slope. 4. What is the marginal rate of substitution at point A? Interpret this value. 5. What condition should be met in order for the consumer to maximize satisfaction in the consumption of good X and good Y? Provide the calculation that satisfies the equilibrium condition. 6. What is Molly's optimal bundle of consumption? 7. Could the marginal rate of substitution be 5 at point C? Justify your answer. 8. If the consumer's income is held constant, how would the prices of goods X and Y have to change to make point C on U, the consumer's equilibrium?
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section6.A: Indifference Curve Analysis
Problem 3SQP
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Transcribed Image Text:Assume Reginald has the option of choosing between two goods, X and Y, both of
which have a positive utility and the choices are reflected in his indifference map, as
illustrated in the diagram below:
Qy
10
7.5
C
A
U2
U1
Qx
4
6
Answer the following questions based on the initial price of commodities X and Y and
Reginald's first income level:
1. Characterize the indifference curve/s of Reginald.
2. If the Reginald's income is P200, what is the price of good X? Of good Y?
Given the prices of goods X and Y, determine the equation of the budget line in
its functional form. Interpret the value of the slope.
4. What is the marginal rate of substitution at point A? Interpret this value.
5. What condition should be met in order for the consumer to maximize satisfaction
in the consumption of good X and good Y? Provide the calculation that satisfies
the equilibrium condition.
6. What is Molly's optimal bundle of consumption?
7.
3.
Could the marginal rate of substitution be 5 at point C? Justify your answer.
8. If the consumer's income is held constant, how would the prices of goods X and
Y have to change to make point C on U, the consumer's equilibrium?
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