Q2. When do economists say that a consumer is in equilibrium, what factors can distort the equilibrium of a consumer? Q3. Mercy spends all her income on books (X) and clothing (Y), her preference can be given by the utility function, U(XY) = V4X²Y². a. Is the assumption "More is better than less" satisfied for both goods? b. Does the marginal utility of Y diminish or remain constant, Explain? c. Find the total utility and the marginal utilities when she consumes 30 books and 15 clothing? d. Suppose that the price of books and cloth are $10 and $20 respectively determines the optimal bundles assuming that Merey's income is $100? e. If the price of books falls by 20% determine the new optimal bundles that Mercy will consume given the same income? f. What is the income and substitution effect using the hicks and slusky method?
Q2. When do economists say that a consumer is in equilibrium, what factors can distort the equilibrium of a consumer? Q3. Mercy spends all her income on books (X) and clothing (Y), her preference can be given by the utility function, U(XY) = V4X²Y². a. Is the assumption "More is better than less" satisfied for both goods? b. Does the marginal utility of Y diminish or remain constant, Explain? c. Find the total utility and the marginal utilities when she consumes 30 books and 15 clothing? d. Suppose that the price of books and cloth are $10 and $20 respectively determines the optimal bundles assuming that Merey's income is $100? e. If the price of books falls by 20% determine the new optimal bundles that Mercy will consume given the same income? f. What is the income and substitution effect using the hicks and slusky method?
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter5: Consumer Choice: Individual And Market Demand
Section: Chapter Questions
Problem 3DQ
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Transcribed Image Text:Q2. When do economists say that a consumer is in equilibrium, what factors can distort the
equilibrium of a consumer?
Q3. Mercy spends all her income on books (X) and clothing (Y), her preference can be given by
the utility function, U(XY) = V4X²Y².
a. Is the assumption "More is better than less" satisfied for both goods?
b. Does the marginal utility of Y diminish or remain constant, Explain?
c. Find the total utility and the marginal utilities when she consumes 30 books and 15
clothing?
d. Suppose that the price of books and cloth are $10 and $20 respectively determines the
optimal bundles assuming that Mercy's income is $100?
e. If the price of books falls by 20% determine the new optimal bundles that Mercy will
consume given the same income?
f. What is the income and substitution effect using the hicks and slusky method?
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