Derive the marginal utilities of applies and bananas. Show that, for qa>0 and qb>0, Ned's preferences satisfy "more is better." State the consumer's problem of Ned. Explain why the budget constraint in the problem, (pa)(qa) + (pb)(qb) less than or equal to Y can be replaced by the budget line : (pa)(qa) + (pb)(qb) = Y Derive Ned's demand functions for apples and bananas
Derive the marginal utilities of applies and bananas. Show that, for qa>0 and qb>0, Ned's preferences satisfy "more is better." State the consumer's problem of Ned. Explain why the budget constraint in the problem, (pa)(qa) + (pb)(qb) less than or equal to Y can be replaced by the budget line : (pa)(qa) + (pb)(qb) = Y Derive Ned's demand functions for apples and bananas
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.2P
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Ned's preferences for apples (qa) and bananas (qb) are captured by the utility function U(qa,qb)= k(qa)^1/5(qb)^4/5 , where k>0 is a parameter. The
- Derive the
marginal utilities of applies and bananas. Show that, for qa>0 and qb>0, Ned's preferences satisfy "more is better." - State the consumer's problem of Ned. Explain why the budget constraint in the problem, (pa)(qa) + (pb)(qb) less than or equal to Y can be replaced by the budget line : (pa)(qa) + (pb)(qb) = Y
- Derive Ned's demand functions for apples and bananas
- Based on the demand function for apples you derive in 3, show that apples are necessities, and sketch the Engel curve of apples
- Suppose k=5 for Ned. There is another consumer, Thalia, who shares the same utility function as Ernie except that for her k=10 . If we interpret utility as "satisfaction" from consumption, this suggests that, for a given consumption bundle, Thalia obtains twice the level of satisfaction as Ned. Does this imply that, for given prices and income, Thalia demands twice the amounts of apples and bananas as Ned? In light of your answer, discuss what should be the right interpretation of utility.
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