The preferences of a typical Californian can be represented by the following utility function: U (x1, #2) = a ln(x1)+(1 – a) In(x2) Here, r1 and r2 are the quantities of electricity and gasoline, respectively. The consumer faces prices given by p1 and p2 and has income m. Currently, the government has decided to impose a consumption restriction so that any person in the state is allowed to consume at most 50 units of electricity (11 < 50). Call this restriction a rationing constraint. If a = 0.25, m = 100, and p1 = P2 = 1, find the optimal consump- tion bundle of gasoline and electricity. Is the electricity rationing constraint binding (meaning does a¡ = 50)? (a) Suppose that a = 0.75, but the other parameters are the same. What is the optimal consumption bundle? Is the rationing con- straint on electricity consumption binding? (Ь)

The preferences of a typical Californian can be represented by the following utility function: U (x1, #2) = a ln(x1)+(1 – a) In(x2) Here, r1 and r2 are the quantities of electricity and gasoline, respectively. The consumer faces prices given by p1 and p2 and has income m. Currently, the government has decided to impose a consumption restriction so that any person in the state is allowed to consume at most 50 units of electricity (11 < 50). Call this restriction a rationing constraint. If a = 0.25, m = 100, and p1 = P2 = 1, find the optimal consump- tion bundle of gasoline and electricity. Is the electricity rationing constraint binding (meaning does a¡ = 50)? (a) Suppose that a = 0.75, but the other parameters are the same. What is the optimal consumption bundle? Is the rationing con- straint on electricity consumption binding? (Ь)

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter20: The Global Economy

Section20.2: Direct Foreign Investment- Should We Be Worried?

Problem 3R

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