Eren’s two main hobbies are taking vacations overseas (V) and eating expensive meals (M). His utility function is given as: U(V,M) = V2M Last year, the average price of taking a vacation overseas was US$200 and the average price of an expensive meal is $50. However, due to supply problems in Onions, the average price of an expensive meal rose to $75. The average price of a vacation did not change. His income, which is $1500, did not change. Calculate the change in consumer surplus from consuming the expensive meals considering the price change (Hint: you need to compare his optimal consumption bundle before and after the price change to get the change in CS).
Eren’s two main hobbies are taking vacations overseas (V) and eating expensive meals (M). His utility function is given as: U(V,M) = V2M Last year, the average price of taking a vacation overseas was US$200 and the average price of an expensive meal is $50. However, due to supply problems in Onions, the average price of an expensive meal rose to $75. The average price of a vacation did not change. His income, which is $1500, did not change. Calculate the change in consumer surplus from consuming the expensive meals considering the price change (Hint: you need to compare his optimal consumption bundle before and after the price change to get the change in CS).
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.5P
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Eren’s two main hobbies are taking vacations overseas (V) and eating expensive
meals (M). His utility function is given as: U(V,M) = V2M
Last year, the average price of taking a vacation overseas was US$200 and the average
price of an expensive meal is $50. However, due to supply problems in Onions, the
average price of an expensive meal rose to $75. The average price of a vacation did not
change. His income, which is $1500, did not change.
Calculate the change in
meals considering the price change (Hint: you need to compare his optimal
consumption bundle before and after the price change to get the change in CS).
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