Malcom only consumes 2 goods - Good A and Good B. His budget constraint is 4A+2B=400, which means Good A's cost is $4 per unit, Good B's cost is fixed at $2 per unit, and income is fixed at $400. However, Good A's cost is not fixed, with the condition that if Malcom consumes more than 5 units of Good A, Good A would cost him $5 per unit. Thus if he does consume more than 5 units of Good A, his budget constraint would be 5A+2B=400 (a). How does Malcom's optimal choice change? Explain in full detail. (b) How does Malcom's well-being change? Explain in full detail.

Malcom only consumes 2 goods - Good A and Good B. His budget constraint is 4A+2B=400, which means Good A's cost is $4 per unit, Good B's cost is fixed at $2 per unit, and income is fixed at $400. However, Good A's cost is not fixed, with the condition that if Malcom consumes more than 5 units of Good A, Good A would cost him $5 per unit. Thus if he does consume more than 5 units of Good A, his budget constraint would be 5A+2B=400 (a). How does Malcom's optimal choice change? Explain in full detail. (b) How does Malcom's well-being change? Explain in full detail.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 23SQ

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Similar questions

Suppose a consumer has a budget of $200 to spend on two goods, X and Y, whose prices are $20 and $10, respectively. If the consumer is observed to buy 5 units of X and 10 units of Y, where the respective Marginal Utilities of X and Y are, 50 and 40 utils, is the consumer in equilibrium? Explain why or why not. If the consumer is not in equilibrium under conditions in d), suggest another combination that would possibly achieve equilibrium. Explain your answer.
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.
A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 15 and the marginal utility of Y is 8. The unit price of X is $3 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should Multiple Choice a. decrease consumption of product X and increase consumption of product Y. b. increase consumption of product X and increase consumption of product Y. c. decrease consumption of product Y and increase consumption of product X. d. stick with the current consumption mix because it yields maximum utility.
You were presented with a utility maximizing rule which states: If you always choose the item with the greatest marginal utility per dollar spent, when your budget is exhausted, the utility maximizing choice should occur where the marginal utility per dollar spent is the same for both goods. That rule is expressed as follows: Group of answer choices (The marginal utility associated with good 1 / the price of good 2) = (the marginal utility associated with good 2 / the price of good 1) % change in price / % change in quantity (The marginal utility associated with good 1 / the price of good 1) = (the marginal utility associated with good 2 / the price of good 2) The marginal utility per dollar of good 1 > the marginal utility per dollar of good 2.