David N. gets $3 per week as an allowance to spend any way he pleases. Because he likes only peanut butter and jelly sandwiches, he spends the entire amount on peanut butter (at $0.05 per ounce) and jelly (at $0.10 per ounce). Bread is provided free of charge by a concerned neighbor. David is a particular eater and makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of peanut butter. He is set in his ways and will never change these proportions. a. How much peanut butter and jelly will David buy with his $3 allowance in a week? b. Suppose the price of jelly were to increase to $0.15 an ounce. How much of each commodity would be bought? c. By how much should David's allowance be increased to compensate for the increase in the price of jelly in part (b)?

David N. gets $3 per week as an allowance to spend any way he pleases. Because he likes only peanut butter and jelly sandwiches, he spends the entire amount on peanut butter (at $0.05 per ounce) and jelly (at $0.10 per ounce). Bread is provided free of charge by a concerned neighbor. David is a particular eater and makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of peanut butter. He is set in his ways and will never change these proportions. a. How much peanut butter and jelly will David buy with his $3 allowance in a week? b. Suppose the price of jelly were to increase to $0.15 an ounce. How much of each commodity would be bought? c. By how much should David's allowance be increased to compensate for the increase in the price of jelly in part (b)?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.2P

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2. David gets $3 per week as an allowance to spend any way he pleases. Since he likes only peanut butter and jelly sandwiches, he spends the entire amount on peanut butter (at $0.05 per ounce) and jelly (at $0.1 per ounce). Bread is provided free of charge by a concerned neighbor. David is a picky eater and makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of peanut butter. He is set in his ways and will never change these proportions. a) How much peanut and jelly will David buy with his $3 allowance per week? b) Suppose the price of jelly increases to $0.15 per ounce. How much of each commodity would be bought? c) By how much should David’s allowance be increased to compensate for the rise in the price of jelly in part b? d) Graph your results of part a through part c. 1 e) In what sense does this problem involve only a single commodity? Graph the demand curve for this single commodity. f) Discuss the results of this problem in terms of the income and substitution…
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David gets $3 per week as an allowance to spend any way he pleases.Since he likes only peanut butter and jelly sandwiches, he spends the entireamount on peanut butter (at $0.05 per ounce) and jelly (at $0.1 per ounce).Bread is provided free of charge by a concerned neighbor. David is a picky eaterand makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of peanutbutter. He is set in his ways and will never change these proportions.a) How much peanut and jelly will David buy with his $3 allowance perweek?b) Suppose the price of jelly increases to $0.15 per ounce. How much of eachcommodity would be bought?c) By how much should David’s allowance be increased to compensate forthe rise in the price of jelly in part b?d) Graph your results of part a through part c.1e) In what sense does this problem involve only a single commodity? Graphthe demand curve for this single commodity.f) Discuss the results of this problem in terms of the income and substitutioneffects involved in the…
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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.
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Question Ebrima gets $3 per month as an allowance to spend any way he pleases. Because he likes only peanut butter and jelly sandwiches, he spends the entire amount on peanut butter (at $.05 per ounce) and jelly (at $.10 per ounce). Bread is provided free of charge by a concerned neighbor. Ebrima is a picky eater and makes his sandwiches with exactly 1 ounce of jelly and 2 ounces of peanut butter. He is set in his ways and will never change these proportions. How much peanut butter and jelly will Ebrima buy with his $3 allowance in a week? Suppose the price of jelly were to rise to $.15 per ounce. How much of each commodity would be bought? By how much should Ebrima’s allowance be increased to compensate for the rise in the price of jelly in part b? Graph your results of part a through part c. In what sense does this problem involve only a single commodity—peanut butter and jelly sandwiches? Graph the demand curve for this single commodity. Discuss the results of this problem…
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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. Suppose that the Department of Welfare wants to know how much should begiven to Eren to offset his change un utility due to the price increase of an expensivemeal. Calculate the compensative variation (CV).