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- Clancy is an accountant who enjoys donuts and muffins. Suppose that the price of donuts increases. As a result, the purchasing power of Clancy's paycheck is diminished. Therefore, he reduces his consumption of all goods, including donuts. This phenomenon is known as the (substitution/income) effect.  Show Transcribed Text  Show Transcribed Text shift of/movement along at every price /due to a change in priceDefine : Substitute goods; Complementary goods; IRRE1 Suppose the Federal Government issues $100 worth of food stamps to everyone in your city. These stamps are coupons that can be exchanged for $100 worth of food at the grocery store and they can be used only by the person to whom they are issued. Draw your budgetline between “food’ and “all other goods” both before and after the food stamps are issued. Assume the price of food = price of “all other goods” = $1.00 and the individual’s initial income is $200.
- Assume coffee and tea are substitutes. Assume income is $100, Pcoffee = $2 and Ptea = $4. Then the relative price of an additional cup of coffee is ______ cup(s) of tea, and the relative price of an additional cup of tea is ______ cup(s) of coffee . 2,.05 2,1 1,2 .5,2If Edna buys more pasta when the price of pastaincreases, we can infer that for Ednaa. pasta is a normal good for which the incomeeffect exceeds the substitution effect.b. pasta is a normal good for which the substitutioneffect exceeds the income effect.c. pasta is an inferior good for which the incomeeffect exceeds the substitution effect.d. pasta is an inferior good for which thesubstitution effect exceeds the income effect.Max consumes coffee and sugar in the fixed proportion of 3 packs of coffee to 2 packs of sugar. A pack of coffee costs $10, and a pack of sugar costs $10. Max has income of $200. a. Max chooses 10 packs of coffee cross out b. Max chooses 10 packs of sugar cross out c. Coffee and sugar to Max are perfect substitutes cross out d. Max chooses 12 packs of cream cross out e. None of the other statements are correct
- Utility is given as: U(x, y) = x^1/2y^1/2 (a) Graph a typical indifference curve for this function. (Hint: Choose a level of utility and draw various combinations of x, y that result in that level (b) Write down the marginal utility of both x and y. (c) What is the marginal rate of substitution (MRS) for this function? (d) Give examples of goods that are well represented by this model.Question 5 5.1) Jane has RM500 a week to spend on clothing and food. The price of clothing is RM25 and the price of food is RM10. The clothing and food pairs in Jane's choice set include ________ units of clothing and ________ units of food. 5.2) Sue is maximizing her utility. Her MUx/Px = 10 and MUy = 40. Then the price of Y must be __________ 5.3) Ted has $600 a week to spend on clothing and food. The price of clothing is $30 and the price of food is $5. What is the equation for Ted's budget constraint, assuming he spends his entire budget? ______________________Brian spends his entire monthly income of $1200 on shoes (S) and pizzas (P). The price of a pair of shoes is $60, and the price of a pizza is $20. If he consumes 10 pairs of shoes and 30 pizzas, his MRS is 2P/1S. (A quantity of shoes is measured along the x-axis, and a quantity of pizza is measured along the y-axis.) His choice is optimal. True False
- a good is normal, then an increase in the price of the good will lead to which of the following to be true for this good? (Assume that there are only two goods, the individual's preferences lead to well-behaved preferences with strictly convex indifference curves and an interior solution for all budgets). Let SE = substitution effect, IE = income effect) (a) The magnitude of the IE for this good must be larger than the magnitude of the SE (b) The magnitude of the SE for this good must be larger than the magnitude of the IE (c) The good could be a Giffen good d) The good must be an ordinary good ( (e) None of the above5.1) Jane has RM500 a week to spend on clothing and food. The price of clothing is RM25 and the price of food is RM10. The clothing and food pairs in Jane's choice set include ________ units of clothing and ________ units of food. 5.2) Sue is maximizing her utility. Her MUx/Px = 10 and MUy = 40. Then the price of Y must be __________ 5.3) Ted has $600 a week to spend on clothing and food. The price of clothing is $30 and the price of food is $5. What is the equation for Ted's budget constraint, assuming he spends his entire budget? ______________________Identify the two goods which are substitutes. (Multiple Choice) A) Good Y and Good Z B) Good X and Good Y C) Good X and Good Z D) It is not possible to distinguish any relationship among the goods.
