Suppose we have the following expenditure function: E(p«‚Py, Pz‚Ū) = Ū¹¹³ +Pa+PzY. Px Then, y is: None of the above A net complement for x A net substitute for x Neither a net complement nor a net substitute for x
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- Akua is a School of Agriculture graduate and consumes 2 goods: Yoghurt and Bread. Akua also earns a typical student income from the parents, GHS 400 a month. She can either spend it all on Yoghurts and get 50, or she can spend it all on Bread and get 200 loaves. (a) Assuming that Yoghurt and Bread are compliments for Akua, construct the equation for Akua’s Budget Line for her to consume all her income of GHS 400. (b) What if Yoghurt is so SOUR that Akua needs 2 loaves of bread for every Yoghurt that she consumes?Given the consumption function C = a + bY (with a>0, 0 < b<1): a. find its marginal function and its average function. b. find the income elsaticity of consumption ECY, and determine its sign, assuming Y > 0. c. Show the income that this consumption function is inelastic at all positive income levelsSuppose that a person has 2000 hours to allocate each year between leisure and work. a. Derive the equation of his budget constraint given an hourly wage of $(15)/hour. b) Graph his budget constraint line based on the equation you derived in part a. (Consumption (C) on the vertical axis and leisure (L) on the horizontal axis). Please make sure to include the value for the vertical and horizontal intercepts. c) Now suppose that the local government introduces an income guarantee program for single parents in which the income transfer is $10,000 per year if an individual does not work during that year (this dollar amount represents the benefit guarantee). If the individual decides to work, this transfer program imposes a 100% benefit reduction rate (e. g.. each additional hourly wage earned is reduced by 100%). Derive the new budget constraint equation that corresponds to this scenario. d) Draw the budget line that corresponds to the new scenario on a new graph. (Consumption (C) on the…
- Explain the relationship between demand, indirect utility and expenditure functions and discuss their propertiesGiven the consumption function C = a + bY (with a > 0 ; 0 < b < 1): (a) Find its marginal function and its average function. (b) Find the income elasticity of consumption ECY, and determine its sign, assuming Y > 0. (c) Show that this consumption function is inelastic at all positive income levels.True/ False Income and consumption has a direct relationship for the normal goods.
- Consider the utility functionU(x, y) = min{x, 2y}Find(a) the Marshallian demand functions for x and y,(b) the indirect utility function,(c) Use the expression for the indirect utility function that your found in part (b) to findthe expenditure function and the Hicksian demand for good x. [Note: Do not answerthis question by solving the expenditure minimization problem!]Terry’s utility function over leisure (L) and other goods (Y ) is U(L, Y ) = Y + LY. The associated marginal utilities are MUY = 1 + L and MUL = Y. He purchases other goods at a price of $1, out of the income he earns from working. Show that, no matter what Terry’s wage rate, the optimal number of hours of leisure that he consumes is always the same. (a) What is the number of hours he would like to have for leisure? Determine the MRS of leisure for labour (b) Draw a leisure-influenced labor curveA consumer has an original income M to spend on goods X and Y. The market price of these two goods are Px=$10 and Py=$25. Based on the information given in the graph above: 1. Determine the consumer income M. 2. Determine the market rate of substitution between goods x and y? give an interpretation of your answer. Now assumer that the consumer income increases to a new level M' but the prices stay the same. Based on the information given in the graph above: 3. Determine the increased income M'. 4. Does the increase in the consumer income increase the market rate of substitution? Explain your answer.
- The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is: a. the product is now relatively more expensive than it was before. b. other products are now relatively more expensive than they were before. c. the real income of the consumer has been increased. d. the real income of the consumer has been decreasedTerry’s utility function over leisure (L) and other goods (Y) is U (L, Y) = Y + LY. The associated marginal utilities are MUY = 1 + L and MUL = Y. He purchases other goods at a price of $1, out of the income he earns from working. Show that, no matter what Terry’s wage rate, the optimal number of hours of leisure that he consumes is always the same. (a) What is the number of hours he would like to have for leisure? (b) Determine the MRS of leisure for labour (c) Draw a leisure-influenced labor curveWhich of the following is true regarding income along a price-consumption curve? A. Income is increasing. B. Income is decreasing. C. Income is constant. D. The level of income depends on the level of utility.
