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- As a college student you work at a part-time job, but your parents also send you a monthly allowance. Suppose one month your parents forgot to send the check. Show graphically how your budget constraint is affected. Assuming you only buy normal goods, what would happen to your purchases of goods?Draw Maries budget constraint with pies on the horizontal axis and magazines on the vertical axis. What is the slope of me budget constraint?Would you expect total utility to rise or fall with additional consumption of a good? Why?
- The rules of politics are not always the same as the rules of economics. In discussions of setting budgets for government agencies, there is a strategy called closing the Washington Monument. When an agency faces the unwelcome prospect of a budget cut, it may decide to close a high-visibility attraction enjoyed by many people (like the Washington Monument). Explain in terms of diminishing marginal utility why the Washington Monument strategy is So misleading. Hint: If you are really trying to make the best of a budget cut, should you cut the items in your budget with tile highest marginal utility or line lowest marginal utility? Does the Washington Monument strategy cut the items with the highest marginal utility or line lowest marginal utility?(a) A consumer has utility u(x,y,z) = ln(x) + 2ln(y) + 3ln(z) over the three goods, x,y and z and pz=1. Optimally she consumes 30 units of z. What is her income? How much money does she spend on x? (HINT: MUx = 1/x, MUy= 2/y, MUz = 3/z and remeber the "equivalent bang for the buck" condition). (b) Forget about (a). Suppose you have t= 29 hours in total to spend on 3 projects X,Y and Z to make some money. If you spend x hours on project X, you make 2 sqrt(x) dollars; If you spend y hours on project Y, you make 3 sqrt(y) dollars; If you spend z hours on project Z, you make 4sqrt(z) dollars; Writing down your "utility function" u(x,y,z) and the constraint, solve the utility maximization problem; what is the optimal amount of time to spend on x? on y? on z?Intialy mr. John is at equilibrium such that the last dollar spent on each of several products gives hi identical marginal utility i.e MUorange/porange=MUApple/pApple=...=MUn/pn where Mu orange =aditional utility derived from consuming one more unit of Apple ,pApple=price of a unit of Apple etc Q.how will Mr.Jhon react if the price of orange and other goods remain constant?and how can the equilibrium be restored?
- Maya divides her income between coffee andcroissanls (both of which arc normal goods). An earlyfrost in Brazil causes a large increase in the price ofcoffee in the U nitcd Stites.a. Show the eflcct ol the frost on Maya's budgetconstraint.b. Shm" the effect ol the frost on Maya's optinu,loonsumption bwl<ile assunling that the substitutioneflcct outweiglls the income effect for croiss:mls.c. Show the eflcct of the frost on Maya's optimalconsumption bw,dle assuming that the incomeeffect outweighs the substitution effect forcroissantsA consumer has a utility function U(X,Y ) = X1/2 Y1/2 . Prices of the goods are pX = £10 and pY = £5, respectively, and the consumer has income M = £200 to spend on X and Y. Currently, she buys 2 units of good X and spends the rest of her income on good Y.a) Determine this consumer’s current utility level. b) Computetheconsumer’smarginalutilitiesofgoodsXandY. c) Explain why the consumer’s current consumption of goods X and Y is not optimal. Should she substitute X for Y or vice versa? The consumer’s marginal rate of substitution is MRS = Y/X.d) Determine this consumer’s optimal consumption of both goods. e) By how much does the consumer’s utility increase when she consumes the optimal bundle?Eren’s two main hobbies are taking vacations overseas (V) and eating expensivemeals (M). His utility function is given as: U(V,M) = V2MLast year, the average price of taking a vacation overseas was US$200 and the averageprice of an expensive meal is $50. However, due to supply problems in Onions, theaverage price of an expensive meal rose to $75. The average price of a vacation did notchange. His income, which is $1500, did not change. Calculate for the equivalent variation (EV) for the price change.
- Eren’s two main hobbies are taking vacations overseas (V) and eating expensivemeals (M). His utility function is given as: U(V,M) = V2MLast year, the average price of taking a vacation overseas was US$200 and the averageprice of an expensive meal is $50. However, due to supply problems in Onions, theaverage price of an expensive meal rose to $75. The average price of a vacation did notchange. His income, which is $1500, did not change. Calculate the change in consumer surplus from consuming the expensivemeals considering the price change (Hint: you need to compare his optimalconsumption bundle before and after the price change to get the change in CS).a halving price of the prices of good A and Good B have the same effects on the budget line as doubling income. is this true or false and how woukld it look like using ana equation of a budget line. It is a hot day, and Bert is thirsty. Here is the value heplaces on each bottle of water:Value of first bottle $7Value of second bottle $5Value of third bottle $3Value of fourth bottle $1a. From this information, derive Bert’s demandschedule. Graph his demand curve for bottledwater.b. If the price of a bottle of water is $4, how manybottles does Bert buy? How much consumersurplus does Bert get from his purchases? ShowBert’s consumer surplus in your graph.c. If the price falls to $2, how does quantitydemanded change? How does Bert’s consumersurplus change? Show these changes in yourgraph.
