Graphically show; 1. Slutsky decomposition PE = SE + IE if commodity X1 is inferior and its price rises (X2 is normal). 2. Slutsky decomposition PE = SE + IE if commodity X1 is Giffen and its price rises (X2 is normal). 3. Slutsky decomposition PE = SE + IE if both are normal goods and price of X1 rises.

Graphically show; 1. Slutsky decomposition PE = SE + IE if commodity X1 is inferior and its price rises (X2 is normal). 2. Slutsky decomposition PE = SE + IE if commodity X1 is Giffen and its price rises (X2 is normal). 3. Slutsky decomposition PE = SE + IE if both are normal goods and price of X1 rises.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.5P

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Graphically show what happens to 1. Slutsky decomposition (PE = SE + IE) graph if commodity X1 is inferior and its price rises (X2 is normal).2. Slutsky decomposition (PE = SE + IE) graph if commodity X1 is Giffen and its price rises (X2 is normal).3. Slutsky decomposition (PE = SE + IE) graph if both are normal goods and price of X1 rises.4. Hicksian decomposition (PE = SE + IE) graph if both are normal goods and price of X1 rises.5. Hicksian decomposition (PE = SE + IE) graph if commodity X1 is inferior and its price rises (X2 is normal).
Which of the following statements is true? Select one or more options: a-If two different individuals have exactly the same budget constraint but different preferences (different appearance of the indifference curves) then they will have different equilibrium conditions for optimal choice b-The marginal substitution ratio is always equal to 1 for perfect substitutes c-If item X costs SEK 10, item Y costs SEK 20 and if the marginal benefit for X is 20 and the marginal benefit for Y is 30, then the individual should buy more of Y and less of X d-In the case of a corner solution for an individual, the marginal substitution ratio for two goods is not equal to the relative price of the two goods
Which of the following statements is true? Select one or more options: -If two different individuals have exactly the same budget constraint but different preferences (different appearance of the indifference curves) then they will have different equilibrium conditions for optimal choice -The marginal substitution ratio is always equal to 1 for perfect substitutes -If item X costs SEK 10, item Y costs SEK 20 and if the marginal benefit for X is 20 and the marginal benefit for Y is 30, then the individual should buy more of Y and less of X -In the case of a corner solution for an individual, the marginal substitution ratio for two goods is not equal to the relative price of the two goods
differentiate between slutsky and hicks approach of decomposing price effect. draw two different diagrams ,one illustrating slutsky version of income and substitution effect and the other illustrating the hicks version of income and substitution effect.
Continue to consider Ronald from Q1. Suppose that Ronald’s preferences over movies and climbing are such that he likes them exactly equally: he is always willing to trade one movie for one climbing session and remain exactly as well of as he was before. One valid utility representation of Ronald’s preferences is u(x, y) = x + y. (a) On the same picture as before, plot indifference curves for the utility levels u = 5.8, 10, 14.2, 18.4. (b) Compute Ronald’s marginal utilities for each good. Using the marginal utility formulas you have just computed, prove that Ronald’s preferences are strongly monotone. (c) i. Label three distinct bundles (x, y) on the indifference curve corresponding to a utility of 5.8. ii. Hence, or otherwise, argue that his preferences are not strictly convex. (d) i. Explain why Ronald’s optimal consumption bundle must lie on the outer boundary of his budget set. ii. Identify Ronald’s optimal bundle by visual inspection. Briefly explain what you did. iii. Find…
George has a fixed income and can afford at most 7 units of X if he spends his entire income on X. Alternatively, if he spends all his income on Y, he can afford at most 6 units of Y. Draw George's budget line and an indifference curve such that George chooses to buy 4 pieces of X. Martha has the same income and faces the same prices, yet she chooses to buy 2 pieces of X. In equilibrium, what is George's subjective value of X in terms of Y? What is Martha's? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
The following data pertain to products A and B, both of which are purchased by Madame X. Initially, the prices of the products and quantities consumed are: PA = $10, QA = 3, PB = $10, QB = 7. Madame X has $100 to spend per time period. After a reduction in price of B, the prices and quantities consumed are: PA = $10, QA = 2.5, PB = $5, QB = 15. Assume that Madame X maximizes utility under both price conditions above. Also, note that if after the price reduction enough income were taken away from Madame X to put her back on the original indifference curve, she would consume this combination of A and B: QA = 1.5, QB = 9 Determine the change in consumption rate of good B due to (1) the substitution effect and (2) the income effect. Determine if product B is a normal, inferior, or Giffen good. Explain.
a. Utility function of Mr. Haroon is given by Find the optimal quantities of the two commodities (X and Y) by using Lagrangian method, if it is given that price of commodity X is Rs. 5 per unit, price of commodity Y is Rs. 10 per unit and income of Mr. Haroon is equal to Rs. 1000. b. Using indifference map elucidates at which point Mr. Haroon would be able to achieve maximum utility.
Kimberly has $1,000 per year to spend between $50 concert tickets and $200 per night getaways. Her utility maximizing combination is 8 concerts and 3 overnight getaways. She recently received a promotion on her job and now she can spend up to $2000 per year on these two items. Her new utility maximizing combination will depend in part on what? Group of answer choices The substitution effect. The income effect. The degree to which concerts and overnight getaways are normal goods or inferior goods. The fact that concerts and getaways are fungible goods.
Give an example of substitute pair and an example of complement pair that you have encountered and how a change in prices affected your spending in each case.
Indicate whether the statement is true or false, and justify your answer.There is a massive body of evidence that humans prefer a fixed amount of utility now to that same amount of utility later.
Suppose that BC1 on the following graph represents your initial budget constraint for good X and good Y, and point A represents the best bundle, given this choice set. After a change in the price of good X, your new budget constraint is now BC2. The compensated budget is parallel to BC2, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (U) at point B.