Consider a consumer who is choosing between All Other Goods (AOG) and food. Suppose the market price of AOG is $1 per unit, and the market price of food is $2 per unit. Consider the following recommendations of the Food-Aid Program for a consumer with income equal to $1000. Give the consumer 100 units of food free. Any amount in excess of 100 units will be charged the market price. The first 100 units of food will be charged half the market price and any amount after that will be charged the market price. All units of food are made available to the consumer at half the market price. A. В. С. On the SAME figure, with food on the horizontal axis and AOG on the vertical axis, draw the budget lines corresponding to each program. (Make sure that you show the quantities corresponding to the vertical and horizontal intercepts of the budget line for each program). (I) On this figure, draw the indifference curves of a consumer who has a strong preference for food. Show the utility-maximizing point for each program. Which program is best for this consumer? Which program is worst? (II)

Consider a consumer who is choosing between All Other Goods (AOG) and food. Suppose the market price of AOG is $1 per unit, and the market price of food is $2 per unit. Consider the following recommendations of the Food-Aid Program for a consumer with income equal to $1000. Give the consumer 100 units of food free. Any amount in excess of 100 units will be charged the market price. The first 100 units of food will be charged half the market price and any amount after that will be charged the market price. All units of food are made available to the consumer at half the market price. A. В. С. On the SAME figure, with food on the horizontal axis and AOG on the vertical axis, draw the budget lines corresponding to each program. (Make sure that you show the quantities corresponding to the vertical and horizontal intercepts of the budget line for each program). (I) On this figure, draw the indifference curves of a consumer who has a strong preference for food. Show the utility-maximizing point for each program. Which program is best for this consumer? Which program is worst? (II)

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter5: Consumer Choice: Individual And Market Demand

Section: Chapter Questions

Problem 3DQ

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abby is a single mom with a weekly budget of $100. She can spend her weeklyincome on food and diapers for her son. Price of food is $1 and price of a diaperis 50 cents. Her son needs at least 5 diapers a day, therefore she must purchaseat least 35 diapers weekly. Jennifer’s utility function is U (f, d) = f 0.9d0.1,where f and d represent quantity of food and diapers, respectively.Question 1 Part aFind abbys optimal consumption bundle. Make sure to draw her budgetconstraint and indifference curves and clearly demonstrate your solution.
There are only two brands of tennis balls Tom purchases: "Wilson" and "Penn." The more he purchases of a ball, the lower the marginal utility of that ball. He spends all of his income and his marginal utility of a "Wilson" is 6 and his marginal utility of an "Penn" is 12. The price of a "Wilson" ball is $1 and the price of an "Penn" is $2. Which of the statements is true based on the above information? Question 19 options: a) Tom could increase his satisfaction by trading "Wilson" for "Penn." b) In equilibrium, Tom must give up three "Penn" balls for two "Wilson" balls. c) Tom can increase his satisfaction by doing nothing d) Tom would be willing to give up two "Penn" balls for one "Wilson" ball.
A consumer has Cobb-Douglas preferences for beer and pizza. She spends 50% of her budget on New Belgium Fat Tire ale, 20% on Coors Light, and 30% on pizza. Her budget is $500. The price of New Belgium is $9, the price of Coors is $6, and the price of pizza is $12. Suppose Coors acquires New Belgium, and now charges $7.50 for both types of beer. In order to quantify by how much this consumer is better off or worse off because of the merger: Solve for their demand functions for each good, as functions of generic prices and budget. Note that the budget shares tell you what the exponents are in the Cobb-Douglas utility function. Use the demand functions to calculate their optimal quantities demanded for each good at pre-merger prices. Plug these quantities into the utility function and calculate their utility level for the quantities demanded at pre-merger prices. Now put the demand functions (not quantities demanded) into the utility function. What budget level is required at the…
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Consider food stamps where the government gives a person $100 worth of food stamps that can only be used to buy food. When the person buys food instead of paying cash he gives an equivalent value of food stamps, e.g. if he buys $50 of food he must surrender $50 of food stamps. After his food stamps are exhausted, the person can continue to buy food but must pay cash. The person's budget line when he receives food stamps shows all the combinations of the 2 goods he can buy using his monetary income plus his food stamps together and is kinked.
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Gino derives utility from only two goods, carrots (Qc) and donuts (Qd). His utility function is as follows:U(Qc,Qd) = (Qc)(Qd)The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows:MUc = Qd MUd = QcGino has an income (I) of £120 and the price of carrots (Pc) and donuts (Pd) are both £1. - suppose a lump sum tax of the same dollar amount, of a 1 pound tax per unit on donuts, is levied on Gino. what is Gino's utility maximising market basket? - why would Gino prefer a per unit tax over the lump sum tax, or vice versa, or why is he indifferent between the two taxes.
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3. Suppose John buys only two goods. His preferences satisfy all standard axioms. Price of good 1 is £2 per unit. Good 2 is priced as follows. There is free provision of the first 3 units. Then, there is a discount of 25% for each additional unit if a consumer buys no more than 6 units. After 6 units a consumer has to pay the full price of £8. The following is true: a)/ If John’s income is £37 and if he wants to consume at least 7 units of good 2 then he can’t afford more than 3 units of good 1. b)/ If John’s income is above £30, and if he consumes 5 units of good 2 at his optimal consumption point, then the MRS at this point must be -1/4. c)/ If John’s income is M, where M is greater than 36, then he can’t afford more than ?+12 8 units of good 2. d)/ If John’s budget is above £45 and if he buys 5 units of good 1, then he can afford at least 8 units of good 2. e)/ None of the above.