(b) Examine the validity of the following statements, giving reasons: (i) If a person consumes two commodities both of which are undesirable, the indifference map will look exactly the same as when both the commodities are desirable. (ii) If the utility function for two commodities is of a Cobb-Douglas form, then the Engel curve is a straight line passing through the origin. 2/5 (iii) The production function, y = x +xx+/7, exhibits decreasing returns to scale.
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- A consumer is willing to trade 4 units of x for 1 unit of y when she is consuming bundle(8, 1). She is also willing to trade in 1 unit of x for 2 units of y when she is consumingbundle (4, 4). She is indifferent between these two bundles. Assuming that the utilityfunction is Cobb-Douglas of the form U(x,y)=xα yβ, where α and β are positiveconstants, what is the utility function for this consumer?Answer both question (a) and (b) below. (a) State theWeak Axiom of Revealed Preference (WARP). (b) In a two-good model, suppose a consumer always chooses the midpoint of the budget line given any (p1; p2; I), does the demand function satisfy WARP? Why? (HINT: Graphs can be helpful to answer the question.)It is given that a typical consumer has a well-behaved preference structure for his consumption bundle, which includes only two goods, A and B. Further, assume that commodity A is normal and commodity B is Giffen. By keeping commodity A on the x-axis and commodity B on the y-axis, you are required to show the price decomposition for commodity B when $PB decreases exogenously relative to $PA.
- A typical consumer has a well-behaved preference structure for his consumption bundle which includes only two goods, A and B. assume that commodity A is normal and commodity B is inferior. By keeping commodity A on the x-axis and commodity B on the y-axis you are required to show the price decomposition for commodity B when $PB increases exogenously relative to $PA. Please Answer the question by using well labelled diagramsSuppose a consumer is indifferent between the bundles (x1, x2) = (20, 10) and (15, 16), and suppose that the same consumer prefers the bundle (19, 9) to both. Is there anything wrong about her preferences when evaluated against the standard assumptions of consumer preferences?To make policy choices that involve gainers and losers, we need to have a restricted principle for making interpersonal utility comparisons. TRUE OR FALSE
- for which utility function recardian equivalence does not hold?If the initial distribution of two goods between two people is Pareto optimal, which of the following statements is TRUE? A. It is possible to reallocate the goods between the two people so as to increase the utility of both people. B. It is possible to reallocate the goods between the two people so as to increase the utility of one person without decreasing the utility of the other. C. It is possible to reallocate the goods between the two people so as to increase the utility of one person, but only at the expense of the other person. D. It is impossible to reallocate the goods between the two people so as to increase either person's utility. E. None of the abovea. Utility function of Mr. Haroon is given by Find the optimal quantities of the two commodities (X and Y) by using Lagrangian method, if it is given that price of commodity X is Rs. 5 per unit, price of commodity Y is Rs. 10 per unit and income of Mr. Haroon is equal to Rs. 1000. b. Using indifference map elucidates at which point Mr. Haroon would be able to achieve maximum utility.
- Under the ordinal theory, a consumer is expected to rank his or her scale of preference from the least to the most satisfying. From this knowledge, describe the assumptions of the ordinal utility theory With the help of illustrations, show how the consumer attains equilibrium under the indifference curve approach As a student of microeconomics, use the knowledge attained during the teaching-learning process and show how the demand curve is derived under the cardinal theory approach .Which of the following statements is true? Select one or more options: -If two different individuals have exactly the same budget constraint but different preferences (different appearance of the indifference curves) then they will have different equilibrium conditions for optimal choice -The marginal substitution ratio is always equal to 1 for perfect substitutes -If item X costs SEK 10, item Y costs SEK 20 and if the marginal benefit for X is 20 and the marginal benefit for Y is 30, then the individual should buy more of Y and less of X -In the case of a corner solution for an individual, the marginal substitution ratio for two goods is not equal to the relative price of the two goodsIf a competitive consumer chooses consumption program x=(20,5,7) at competitive prices p=(2,1,5), consumption program y=(15,10,6) at competitive prices p’=(3,1/2,5) then under the usual assumptions, A) violates the weak axiom of revealed preference (WARP) B) doesn’t violate WARP and exhibit direct revealed preference for x with respect to y. C) doesn’t violate WARP and exhibit direct revealed preference for y with respect to x. D) doesn’t violate WARP and doesn’t exhibit any direct revealed preference between x and y. E) NOPAC