Why must a budget constraint have a negative slope? Income and quantity demanded are inversely related. On a budget constraint, buying more of one good requires buying less of another. O The spreading effect. Decreasing returns to scale. Diminishing marginal utility.
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- A student has a monthly budget of $120 to spend on eitherburritos, which cost $6 each, or sodas, which cost $4 each.1. What is the largest number of burritos that the studentcould afford to purchase in one month?2. What is the largest number of sodas the student couldafford to purchase in one month?3. Draw the student's budget constraint. Put burritos on thex-axis and sodas on the y-axis.Graded Assignment due Monday4. Which combinations of burritos and sodas are unaffordable--those tothe left of the line in the graph or those above the line in the graph? Why?5. Which combinations would leave some budget unspent - those to theleft of the line in the above graph or those to the right of the line in theabove graph?6. What is the equation for the student's budget constraint? In yourequation, use Q1 as the variable to represent the quantity of burritos andQ2 to represent the quantity of sodas.7. What is the opportunity cost of a burrito?8. What is the opportunity cost of a soda?9. The local…1. How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double? (Hint: focus on the budget constraint) 2. Output is produced according to a production process given by: Q = 4LK, where L is the quantity of labor input and K is the quantity of capital input. If the price of K is $10 and the price of L is $5, then what is the cost-minimizing combination of K and L capable of producing 32 units of output?Total utility is maximized in the consumption oftwo goods by equating thea. prices of both goods for the last dollar spenton each good.b. marginal utilities of both goods for the lastdollar spent on each good.c. ratios of marginal utility to the price of bothgoods for the last dollar spent on each good.d. marginal utility of one good to the price ofthe other good.
- 4 Assume that a person's utility over two goods is given by U(g1; g2) = g1 + ln g2. The price of good g1 is equal to p1 and the price of good g2 is p2. The total income of the individual is given by I. The marginal rate of substitution between g1 and g2 is given by 1/(1/g2). Then, the expressions for this person's (1) budget constraint, (2) budget line's slope (assume that, graphically, g1 is on the horizontal axis and g2 on the vertical axis), and (3) the person's demand function for g2 (that is, g2 as a function of price ratio) are respectively:Draw Marie’s budget constraint with pies on thehorizontal axis and magazines on the vertical axis. Whatis the slope of the budget constraint?George enjoys bananas and leisure. He sleeps 8 hours per day. Of the remaining 16 hours, for each hour he works he is paid 2 bananas. He also receives 6 bananas in dividends but has to pay 6 bananas in taxes. Draw George’s budget constraint (put consumption on the vertical axis and leisure on the horizontal). Make sure to show the vertical and horizontal intercepts as well as the slope. Now suppose that George chooses to work 6 hours per day. Find how many hours o f leisure and how many bananas he will consume, and show his optimal choice on the budget line using an indifference curve. Suppose that the government uses some of the taxes to give back to George income assistance of 4 bananas. Show the impact of the measure on George’s budget constraint Use an indifference curve to show George’s new optimal allocation and explain what will happen to his consumption of bananas and leisure if both are normal goods. The graphs below shows the behaviour of consumption of durables and…
- George enjoys bananas and leisure. He sleeps 8 hours per day. Of the remaining 16 hours, for each hour he works he is paid 2 bananas. He also receives 6 bananas in dividends but has to pay 6 bananas in taxes. Draw George’s budget constraint (put consumption on the vertical axis and leisure on the horizontal). Make sure to show the vertical and horizontal intercepts as well as the slope. Now suppose that George chooses to work 6 hours per day. Find how many hours o f leisure and how many bananas he will consume, and show his optimal choice on the budget line using an indifference curve. Suppose that the government uses some of the taxes to give back to George income assistance of 4 bananas. Show the impact of the measure on George’s budget constraint Use an indifference curve to show George’s new optimal allocation and explain what will happen to his consumption of bananas and leisure if both are normal goods. The graphs below shows the behaviour of consumption of durables and…Jack derives utility from Hokey course (H) and Chess course (C) as given by the following utility function:U (H, C) = √HCThe average price for the hokey course is 20 dollars and for chess course16 dollars. Moreover, Jack has a budgetof 80 dollars.a) Use Lagrange optimization method to find Jack’s utility maximization choice of consumptionbundle. Find also his utility level from consuming that bundle.b) Assume that price of chess course increases to 25 dollars. Suppose Jack also changed his budget forconsumption and we do not know it. Denote Jack’s budget by α and find his demand for H and Cunder the new conditions as a function of α.c) Find the income level which is necessary to make Jack reach the same utility level as before theprice change.Columns 1 through 4 of the accompanying table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are $18, $6, $4, and $24, respectively, and that Ricardo has an income of $105. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? How many dollars will Ricardo choose to save? Check your answers by substituting them into the algebraic statement of the utility‑maximizing rule. In other words, show it works when using this rule.
- Columns 1 through 4 in the following table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are, respectively, $18, $6, $4, and $24 and that Ricardo has an income of $106. a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many dollars will Ricardo choose to save? c. Check your answers by substituting them into the algebraic statement of the utility-maximizing rule.Ronald is an Economics students who likes to spend his leisure time of sixty hours a month doingone of two activities: watching movies at Dendy Cinemas Newtown (x), and indoor-climbing(y). A trip to the movies takes 3 hours, and each visit to the climbing gym lasts 5 hours.Further, suppose that Ronald has a fixed monthly monetary budget to spend on leisure activities. He currently exhausts this entire budget by watching two movies and visiting the climbinggym fifteen times. With this monthly budget, he would also have been able to afford exactlyseven movies and six visits to the climbing gym.Assume that both goods are perfectly divisible.(b) Show, using algebra, that Ronald’s two budget lines intersect at the bundle (x, y) =(5.5, 8.7).A consumer has income of $3,000. Wine costs $3per glass, and cheese costs $6 per pound. Drawthe consumer’s budget constraint with wine onthe vertical axis. What is the slope of this budgetconstraint?
