By moving from point A to point D, this nation is giving up Capital goods A A B C D E Neither Both B Capital Goods Consumer Goods F D Consumer goods
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- Assume that you are on an island where there are only two commodities—coconuts and pineapples—and you can spend your income only on these two foods. If the price of coconuts is Pc and the price of pineapples is Pp and your income is I, draw a budget constraint, carefully labelling the points on the two axes and where the attainable and unattainable portions of consumption are. Note: you can choose any Pc and Pp that you like—they do not have to be equal. What is the slope of this budget constraint? What is the economic interpretation of the slope? Now, let’s bring a little more structure to this diagram. Let I=£200, Pc=£1 per coconut and Pp=£2 per pineapple. Draw a new diagram using these numbers. Consider these questions: How many coconuts can you buy if you do not buy any pineapples? How many pineapples can you buy if you do not buy any coconuts? What is the slope and what economic information does it give us? Show the point of 100 coconuts and 100 pineapples on your diagram. Can…Consider a simple economy with two individuals (A and B) and two goods (x and y). Can you please Write down the Pareto efficient conditions for this economy and explain thefirst fundamental theorem of welfare economics?Suppose Tom and Jerry can buy/ sell apples at price Pa and bananas at price Pb. Both are price-takers. Given these prices, they seek to maximize utility by choosing how many apples and bananas to buy/sell. Tom's utility Ut (At,Bt)= log At + logBt s.t. Pa(At) + Pb (Bt) = 12 Pa + 6 Pb Jerry utility Uj (Aj,Bj)= log Aj + logBj s.t. Pa(Aj) + Pb (Bj) = 9 Pa + 15 Pb How many apples and bananas should Tom and Jerry consume? Answer in terms of Pa and Pb
- A consumer has income of $15,000. Pillows costs $35 per pillow, and soda costs $70 per bottle. Under what circumstance(s) if any can an increase in the price of pillows induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.Because consumers purchase either Coke or Pepsi, economists call these “inferior” goods. Select one: True FalseIf the preferences are concave will the consumer ever consume both ofthe goods together?
- Consider an economy composed of 16 consumers. Of these, 5 consumers each own one right shoe and 11 consumers each own one left shoe. Shoes are indivisible. Everyone has the same utility function, which is Min(2R, L}, where R and L are, respectively, the quantities of right and left shoes con sumed. A) (10%) Is the status quo (where each individual has his own shoe) Pareto efficient? If so, briefly explain why. If not, provide a Pareto improvement b) (10%) Characterize all Pareto efficient allocationsPareto eliminated psychology from economics:a. by defining utility as ordinal, not cardinal utilityb. searching for secondary qualities of thingsc. defined rationality as consumer behavior only after they have bought something several timesd. by accepting revealed preference.Draw Marie’s budget constraint with pies on thehorizontal axis and magazines on the vertical axis. Whatis the slope of the budget constraint?
- Suppose pizza(P) and hamburger(H) are perfect substitutes for Andy. He is always willing to substitute two pizzas for one hamburge(b) The price of pizza is pP = $2 per pizza and the price of hamburger is pH = $2 per hamburger.What is Andy’s optimal consumption bundle if his income level is $30?(c) To promote the sale of pizza, now the owner of the pizza restaurant decides to give out the first two pizzas to every consumer for free, and af- terwards, if the consumer wants more, the consumer will still pay at the price of pP = $2 per pizza. If the price of hamburger and Andy’s income are same as before,draw Andy’s budget line. What is Andy’s optimal con- sumption bundle in this case?(d) Now,to promote the sale of pizza, instead of giving out the first two pizzas for free, the owner of the pizza restaurant decides to lower the price of pizza to $0.8 per pizza. Given price of hamburger and Andy’s income remain the same as before, what is Andy’s optimal consumption budle now? Compare with…. Suppose that initially, bread is $2 per loaf,and cake is $2 per slice. Marie Antoinettehas $18 to spend on these items each week.At this income and those prices, Marie consumes 5 loaves of bread and 4 slices of cake.Then, the price of bread DECREASES to$1 per loaf. (The price of cake is still $2.)IF Marie’s budget had also fallen to $13so that she could still just afford her original bundle, she WOULD choose to spendthose $13 on 7 loaves of bread and 3 slicesof cake.But since Marie still has her original $18budget, she actually chooses to buy 4loaves of bread and 7 slices of cake afterthe price change.When the price of bread fell from $2 to $1,what was the substitution effect on Marie’sdemand for bread?Ehh and Mol can produce bread and butter. Suppose That Ehh can produce 40 breads per minute, while Mol can produce 30. Alternatively, Ehh can produce 10 butters per minute, while Mol can produce 5. Assume that Ehh and Mol specialize only one of the goods. Based only this information. For Ehh and Mol t consume the greatest amount of bread and butter, Ehh should specialize in producing ________because he has an ________advantage in /their production.