Y 500 Budget line I 300 A 200 Budget line II X 100 в с The consumer's initial budget line is I with income equal to $3000. The budget line then shifts from I to II because of a change in the prices of goods X and Y but no change in income. while the price of good X along budget line I The price of good Y along budget line I is $_ is $
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- E1 Suppose the Federal Government issues $100 worth of food stamps to everyone in your city. These stamps are coupons that can be exchanged for $100 worth of food at the grocery store and they can be used only by the person to whom they are issued. Draw your budgetline between “food’ and “all other goods” both before and after the food stamps are issued. Assume the price of food = price of “all other goods” = $1.00 and the individual’s initial income is $200.Consider the consumer's problem with two goods, good X and good Y. Is it possible that the budget line of the consumer, given by the equation pyX + PyY = I shifts to the right and parallel to its original position in (X, Y) plane while the income () remains constant? Provide an analytical explanation for your response. (Hint: the budget line shifts to the right and parallel to its original position when the income I rises and prices constant. This question asks if the prices can change in a certain way that the budget line shifis as if income had increased.)Suppose a consumer has a monthly income of m = 100 which she spendson two commodities: french fries (x1) and beef jerky (x2). The price offrench fries is p1 = 2 and the price of beef jerky is p2 = 5. (e) What is the slope of the budget line? Provide an economicinterpretation of this number.(f) Because of Mad Cow Disease, the price of beef jerky increasesto $10 (lower supply of beef). On a new graph, plot the originaland new budget constraint clearly identifying how the budgetconstraint has changed. What is the new relative price of beefjerky in terms of french fries?(g) Because of severe shortages, Congress passes the Jerky ReliefAct which limits each consumer to purchase at most 5 packs ofjerky. Show on a graph how this affects the consumer’s budgetset. Answer all three.
- The the consumer-facing the budget line P1x1+p2x2=M where p1 and p2 price is given as good 1 and 2 and x1 and x2 are quantity demanded for good 1 and 2 respectively,M is consumer income ,if the price of good 1 doubles ,the price of good 2 becomes 5 times larger and incomes becomes 3 times larger , write down an equation for the new budget line in terms of the original prices and incomeDarwin consumes cigarettes (x1) and other goods (x2). His preferences are given by UD(q1,q2)=4lnq1 +q2The quantity of good 2 is measured in units of income and so you can assume that throughout this problem, the price of good 2 is normalized p2 = 1 (a) Using the Lagrangian, derive Darwin’s uncompensated demand for cigarettes: D1D(p1,Y). Note that we are holding p2 =1 and so that is not a variable in the demand function. Using the Lagrangian, derive the equation λ∗(p1, Y ). Provide an economic interpretation of the Lagrange multiplier. Does it vary with income, Y ?It is given that the price of goods X and Y are both Rs.10 each, a consumer consumes 10 units of X and 10 units of Y at equilibrium.a. Draw the budget line and indifference curve and show the point of consumer equilibrium. b. If the price of X falls to Rs.5, PY and money income remaining the same, what is the real income increase?c. At the new equilibrium caused by a fall in price of X, the consumer has a combination of 16 units of X and 12 units of Y. Show the price effect of a change in price of X using the PCC.d. Why are more units of Y consumed even though its price has not fallen?
- The utility function of a certain consumer is U =(x1,x2)= x11/3 x22/3 , x 1and x 2 is the consumption of two kinds of goods, and the consumer's income is 100. The current prices of the two kinds of goods are P 1 =1 and P 2=2 respectively, ask: 1. If the price of the first commodity increases from 1 to 2, and other factors remain unchanged, what is the total effect of the price increase on the consumption of the first commodity? According to the Slutsky decomposition principle, what are the income effect and substitution effect? 2. Calculate the amount of income compensation that changes the price of the first commodity from 1 to 2, keeping the original effect unchanged1. 1. Rummy has $40 a week to spend on burger and cake. The price of burger is $5 and the price of cake is $2 a slice. a. Calculate Rummy's real income in terms of cake. b. Calculate the relative price of cake in terms of burger. Calculate the equation for Amy's budget line. d. If Rummy's income increases to $60 a week and the price of burger and cake remain unchanged describe the change of his budget line. e. If the price of cake doubles while the price of burger remains at $5 and Rummy's income remains at $40 describe the change in his budget line. f. If Rummy's income is $20 and all the money spend to purchase burger, how many burger he can purchase? 2. Consider Competitive Market where Jamil is selling flowers. If Market Price is $50 answer the following FC Flowers 6 TC 445 485 300 7 8 9 530 580 10 11 635 695 Questions: i. How many flowers should he sell? ii. Calculate Jamil's Profit or Loss. iii. Find the Price at which he will shut down in the short run. iv. Find the Price at…4. Sompa consumes two goods (x and y) with a total income of GHS 20 and the price of the two goods are GHS 4.00 and GHS 5.00 for commodity X and Y respectively.a. Write down the equation of the budget lineb. What is the slope of the budget line?c. How does the budget line change if the consumer income increases to GHS 40 but prices remain unchanged?d. What happens to the budget line if the price of good y decreases to 3 whiles the price of good x and income remain unchanged?e. What happens to the budget line if price of good x increases to 7 whiles the price of good x and income remain unchanged?f. How much of good x can Sompa consume if she spends her entire income on that good?g. How much of good y can Sompa consume if she spends her entire income on that good?5. With the aid of a diagram analyse the income, substitution and total effect of a price change on the following type of goods. a. Normal goods b. Inferior goods c. Giffen goods
- David’s utility function for good X and Y is given by U (x, y) = x2 y3 . Where Px, Py and I are the price of good X, price of good Y and consumer income respectively. i. Write the budget equation of the consumer and draw the line of this equation. ii. Using the budget line drawn in (i) show the effect of a 100 percent increase in the price of good X hold the price of good Y and income constant. iii. Using the budget line drawn in (i) show the effect of a 100 percent increase in his income holding the price of both goods constant. iv. What combination of X and Y maximizes the consumer’s utility at I=100, Px = 4 and Py = 5. v. Calculate the marginal rate of substitution between X and Y at equilibrium and interpret your results vi. Suppose all prices double and income is held constant, what is the effect of this on the optimal combination of X and Y? vii. What happens to the optimal combination of X and Y if price of good X decreases to 2 whiles the price of good Y and income…Ques 1. Sally consumes two goods, X and Y. Her utility function is given by the expression U=3XY2. The marginal utility of X and marginal utility of Y are given by the following equations: MUX=3Y2 and MUY=6XY The current market price for X is $10, while the market price for Y is $5. Sally's current income is $500. A) Draw out Sally’s budget line. (show the points where it meets the vertical and horizontal axes) B) Determine the X,Y combination which maximizes Sally's utility, given her budget constraint. (Partial units for the quantities are possible.) [Hint: One of the ways to do this is to use the equal marginal principle to find the optimal ratio of X to Y and then use that in the budget equation]. C) How much is Sally’s utility? Now the price of X increases to $15. What is the ratio in which she will consume X and Y ?a halving price of the prices of good A and Good B have the same effects on the budget line as doubling income. is this true or false and how woukld it look like using ana equation of a budget line