Beans and doughnuts: The consumer receives positive benefits from the consumption of beans (B) and donuts (K). Utility function of the consumer is the following: U(B,K) = 100∙B^0.25 · K^0.75 The price of beans (can) is ISK 2,000. but the price of a donut (box) is ISK 4,000. Consumption restrictions are placed on the consumer since his income is ISK 400,000. Put on all form donuts on the x-axis and beans on the y-axis. a) Show an equation for the bean's success rate for a single donut in light of the utility function. Draw the equivalence curve on a picture and explain what the equation is performance ratio is stated at each point on the equivalence curve. Explain with the concept of the efficiency ratio of the curvature of the equivalent curve. b) Find the most efficient consumption combination and draw on the diagram. c) The government decides to support the consumption of beans so its price drops to 1,000. Who is the most economical consumption combination based on the changed price level?
Beans and doughnuts:
The consumer receives positive benefits from the consumption of beans (B) and donuts (K). Utility function of the consumer is the following: U(B,K) = 100∙B^0.25 · K^0.75 The
a) Show an equation for the bean's success rate for a single donut in light of the utility function. Draw the equivalence curve on a picture and explain what the equation is performance ratio is stated at each point on the equivalence curve. Explain with the concept of the efficiency ratio of the curvature of the equivalent curve.
b) Find the most efficient consumption combination and draw on the diagram.
c) The government decides to support the consumption of beans so its price drops to 1,000. Who is the most economical consumption combination based on the changed price level?
d) Divide the changed consumption pattern into the separate effects of displacement and income effects. The sample the most efficient consumption combination in the figure and separate the changed consumption due to price changes in displacement and income effects
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