Javier consumes large pepperoni pizzas, Z, and boxes of graham crackers, G. Each of his indifference curves reflects strictly diminishing marginal rates of substitution Where Z-8 and C-4 (point R), his marginal rate of substitution between pizzas and boxes of graham crackers equals -0.50 (MU/MU) Will she prefer a bundle with 6 pizza(s) and 7 box(es) of graham crackers (bundle T) to her current bundle? Graham Crackers (G) 121 114 10- D H 14 6 S 44 34 24 T Pizzas (2) 20 9 10 11 12

Javier consumes large pepperoni pizzas, Z, and boxes of graham crackers, G. Each of his indifference curves reflects strictly diminishing marginal rates of substitution Where Z-8 and C-4 (point R), his marginal rate of substitution between pizzas and boxes of graham crackers equals -0.50 (MU/MU) Will she prefer a bundle with 6 pizza(s) and 7 box(es) of graham crackers (bundle T) to her current bundle? Graham Crackers (G) 121 114 10- D H 14 6 S 44 34 24 T Pizzas (2) 20 9 10 11 12

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.11P

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If Porsha views 3 glasses of juice as a perfect substitute for one cup of soda and vice versa, what is her marginal rate of substitution between juice and soda?
Mrs. Griffiths earns $5000 a week and spend her entire income on dresses and handbags. Since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Dress is $25 and handbags is $14. i. Suppose the price of a dress increases to $200 and income decreases to $4200. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.
Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Suppose the price of a dresses increases to $200 and income decreases to $4200. What is the new algebraic equation for Mrs. Griffiths budget constraint? Show the impact of the new budget line relative to the original budget line. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution. Assume for this question only that when the price of dresses decreases, less of that good is demanded. Illustrate the income and substitution effect of this price decrease.
It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute 4 pounds of a generic store brand for 2 pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution? Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased? How would your answer change if the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound?
Mary has two dinner options available: eating a home cooked meal for $150 per meal, or at a restaurant for $260 per meal. Her weekly budget is $2500. iv. Suppose the price of a home cooked meal increases to $200 and income increases to $4200. Show the impact of the new budget line relative to the original budget line. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution
Scenario 16.1: Irrespective of the amount of cheese doodles and pretzels that Sam consumes, his marginal rate of substitution of cheese doodles for pretzels is 2. Also, irrespective of the amount of cheese doodles and pretzels that Sally consumes, her marginal rate of substitution of cheese doodles for pretzels is 3. Refer to Scenario 16.1. Suppose instead that Sam is initially allocated 3 cheese doodles and 3 pretzels, whereas Sally is initially allocated 6 cheese doodles and 10 pretzels. Which of the following statements is TRUE? A. The allocation is not Pareto optimal as Sally would be willing to exchange two pretzels for one cheese doodle and be better off, without making Sam worse off. B. This allocation is Pareto optimal. C. The allocation is not Pareto optimal as Sam would be willing to exchange one pretzel for two cheese doodles and be better off, without making Sally worse off. D. This allocation is not Pareto optimal as Sally and Sam have unequal amounts of each good.
Cho lives in Miami and loves to eat desserts. She spends her entire weekly allowance on pudding and pie. A bowl of pudding is priced at $1.50, and a piece of pumpkin pie is priced at $4.50. At her current consumption point, Cho's marginal rate of substitution (MRS) of pudding for pie is 5. This means that Cho is willing to trade five bowls of pudding per week for one piece of pie per week.
Matthew said that he is exactly indiffferent between consuming four slices of pizza and one beer versus consuming three slices of pizza and two beers. He also said that he prefers a bundle consisting of one slice of pizza and three beers to either of the first two bundles. Do Matthew's preferences exhibit diminishing marginal rate of substitution?
Is the marginal rate of substitution is another way to mathematically expressing the opportunity for one more unit of a good that is consumed
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