You are deciding what apartment to rent in a somewhat hip neighborhood. There are two goods you care about: Square feet of housing space (H), and pupusas (F). You can rent an apartment for $2/square foot/month, and can purchase pupusas for $2/pupusa'. Your monthly budget is $1,600. a. Write down the equation for your budget constraint. Draw your budget constraint, with square feet of housing on the horizontal axis and pupusas per month on the vertical axis. b. Suppose that your preferences can be represented by the utility function: U(H,P) = 4H³pÅ Determine your optimal choice of housing and pupusas given your budget constraint. Label this point on your budget constraint, and draw an indifference curve through this point representing your preferences (your indifference curve should have the correct shape, and should show that your optimal point is, indeed, optimal, but it does not need to exactly correspond to your utility function). c. A media frenzy over the availability of excellent vegan street food results in an increase in rent. You can now rent an apartment for $6/square foot/month. Because you're a renter, you get no increase in income from this price change. Write down the equation for your new budget constraint, and graph it on the same graph from part a. Label this BC3. d. Determine your optimal choice of housing and pupusas given your new budget (BC2). Label this point on your new budget constraint, and draw an indifference curve through this point representing your preferences. e. Graphically decompose your change in housing from part b to part d into an income and substitution effect. Note: While you don't need to get exact answers for this decomposition, you should correctly identify the direction of each effect.

Question

Only d and e needed

You are deciding what apartment to rent in a somewhat hip neighborhood. There are two goods
you care about: Square feet of housing space (H), and pupusas (F). You can rent an apartment
for $2/square foot/month, and can purchase pupusas for $2/pupusa'. Your monthly budget is
$1,600.
a. Write down the equation for your budget constraint. Draw your budget constraint, with
square feet of housing on the horizontal axis and pupusas per month on the vertical axis.
b. Suppose that your preferences can be represented by the utility function:
U(H,P) = 4H³pÅ
Determine your optimal choice of housing and pupusas given your budget constraint.
Label this point on your budget constraint, and draw an indifference curve through this
point representing your preferences (your indifference curve should have the correct
shape, and should show that your optimal point is, indeed, optimal, but it does not need to
exactly correspond to your utility function).
c. A media frenzy over the availability of excellent vegan street food results in an increase
in rent. You can now rent an apartment for $6/square foot/month. Because you're a
renter, you get no increase in income from this price change. Write down the equation
for your new budget constraint, and graph it on the same graph from part a. Label this
BC3.
d. Determine your optimal choice of housing and pupusas given your new budget (BC2).
Label this point on your new budget constraint, and draw an indifference curve through
this point representing your preferences.
e. Graphically decompose your change in housing from part b to part d into an income and
substitution effect. Note: While you don't need to get exact answers for this
decomposition, you should correctly identify the direction of each effect.
View transcribed image text
Expand

Expert Answer

1 Rating

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Economics

Indifference Curves and Budget Line

Related Economics Q&A

Find answers to questions asked by students like you.

Q: Consider the following production function                                                          ...

A: Hi! Thank you for the question but as per the guidelines, we only answer up to three subparts at a t...

Q: Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar a...

A: The rate of exchange refers to the value of a domestic currency expressed in terms of foreign curren...

Q: what is the advantage of and disadvantage of globalization and its impact on the economy

A: Globalization is the process in which the businesses operate in an international scale. 

Q: True or False. The MB = MC level of immigration is likely to be achieved if we simply let in every p...

A: False, the MB = MC level of immigration is not likely to be achieved if we simply let in every perso...

Q: The table gives the supply schedule for shoes. Calculate the elasticity of supply when     Price...

A: Definition: Elasticity of Supply: The elasticity of supply is given by the percentage change in the...

Q: Draw the supply and demand curve for TVs. Doctors discover that watching HD TV prevents cancer. What...

A: Demand curve shows the relation between quantity demanded and price. It has an inverse relation.  Su...

Q: With a high stress job that oversees the public health of a nation, Tony loves to eatpomegranate (qm...

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and s...

Q: Why might a central bank choose to monetize the debt,knowing that it could lead to higher inflation?

A: Debt monetizing refers to the sponsoring of government expenditures by the monetary authority of the...

Q: please see the attachment.

A: Last year the price of gasoline is $3.00 per gallon, this year it is $4.00. But consumer more gasoli...

Q: Identify the trade-restraining practice that this example demonstrates. Two retailers decide that th...

A: A trade restraint is a regulation or practice by an incumbent player(s) that hinders a party(s) from...

Q: Explain whether the following statements are true,false, or uncertain.a. “Inflation hurts borrowers ...

A: Inflation is the increase in the price level from one period to another. 

Q: Your enterprising uncle opens a sandwich shopthat employs 7 people. The employees are paid$12 per ho...

A: Profit is maximizing when the wage rate is equal to the MRP, That is, W rate is equal the marginal p...

Q: Explain how income inequality in the United States is measured and described.

A: Income inequality refer to the gap or difference in the reference of income paid to in individual by...

Q: Why must organizations develop suppliers? Is supplier development a long-term trendor just a fad? Ex...

A: Supplier development refers to a strategy that promotes to work closely with the diverse supplier, i...

Q: (Table) Based on the table, how would you characterizę absolute advantage for the goods: Canada's Pr...

A: The theory of absolute advantage refers to the ability of a country to produce more goods and servic...

Q: Solve it early with short explain all subparts a, b, c and d.  I upvote definitely

A: The effective annual interest rate and the yearly nominal interest rate are two different concepts. ...

Q: Briefly discuss the demand and supply factors that contribute to rising health costs. Specify how (a...

A: (a) Asymmetric information refers to the individuals or consumers lack of understanding and informat...

Q: If the president of a bank told you that the bank wasso well run that it has never had to call in lo...

A: No, buying stock from that bank would not be worth.

Q: Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for...

A: Perfect or pure competition is a form of market in which a large number of perfectly informed buyers...

Q: In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does t...

A: In microeconomics, the study of the resource market where the demand for the factor is a derived dem...

Q: Summarize how the“three players” caninfluence the moneysupply.

A: Money supply represents the total stock of money in the form of currency in circulation or bank depo...

Q: Determine whether each of the following would cause a shift of the aggregate demand curve, a shift o...

A: Wage rate: Wage rate is a compensation rate for labor. In a simple meaning, it is an income of labor...

Q: What Is Trade Journals?

A: Trade journals or trade magazines are the periodic releases which cover the specific trade group or ...

Q: Suppose a demand function is given by p = 15 + 6000(q+25)-1 and the supply function is given by p = ...

A:   Therefore, equilibrium price, p* = 83.1 and quantity ,q* =63.10.

Q: 1. The incomes of consumers goes up. What assumption are you making about tennis rackets? Label the ...

A: Since there are multiple sub-parts in the question, only the first three sub-parts will be answered ...

Q: Suppose that in the country of Sudland, when the yearly rate of economic growth fell from 3.0% to 1....

A: The economy experiences economic growth to fall from 3 percent to 1.5 percent. This means that the c...

Q: Retired persons often have much of their wealth placedin savings accounts and other interest-bearing...

A: Real interest rate refers to the interest rate that subtracts the inflation rate from the nominal in...

Q: Briefly describe the main features of Medicare and Medicaid, indicating how each is financed

A: Medicare is a health care insurance program mainly for the older people and disabled people, adminis...

Q: What is the ans for PURE specific and the ans for MIXED specific. Pls give explanations for the diff...

A: Specific Factor model was explained by Jacob Viner which is an addition to the Ricardian model of co...

Q: 7. Draw the supply and demand curve for pencils. Clayton county provides every student with a laptop...

A: Answer: Introduction: If Clayton county provides laptops at school, then the students reduce the use...

Q: State the relationship between AVC and AP (average product) 1. If AP is increasing, AVC will be incr...

A: Average product (AP): Average product can be find by dividing TP / TVF. Where, TP is total product a...

Q: Q) If a tax is economical, Select one: a. its cost of collection is small relative to the revenue co...

A: A process is considered economical when the value generated from it greatly exceeds the amount of re...

Q: Two goods have a cross-price elasticity of demand of 1.2:   Would you describe the nature of goods?...

A: Cross price elasticity of demand for two goods is given as 1.2 It can be defined as the changes in t...

Q: Suppose that Lynn enjoys sugar in her coffee.  She has very particular preferences, and she must hav...

A: We can derive the utility function using the information given as :  U = min(3C,S) This is Leontif o...

Q: 1. Current tuition at Benedict College is around $24, 000 a year. Show what would likely happen to d...

A: Hello, thank you for the question. But since there are multiple questions posted here, as per the ho...

Q: Which of the following will shift the demand curvefor pizza to the right?a. an increase in the price...

A: Demand refers to the volume of goods and services that a consumer is willing to purchase at a given ...

Q: Why is it critical to have a smaller supply base before committing to a suppliermanagement and devel...

A: When you have a larger supply base then high carrying and inventory cost will be incurred. Committin...

Q: Suppose that the price elasticity for hip replacement surgeries is 0.2. Further suppose that hip rep...

A: The concept of price elasticity of demand is used to explain the responsive nature between the corre...

Q: What was the financial impact on Britain as a result of fighting the war and stationing troops in No...

A: There is a big history of Britain's colonization across the world, Britain covered and ruled more th...

Q: Complete the following table.    Units           TFC       TVC    TC       AFC       AVC      AC   ...

A: Hi, thank you for the question. As per the guidelines, we are allowed to attempt only first question...

Q: 2.what is one of the core propostions underpinning an istitution-base viewbof global business

A: Globalization is explained as an international business that will provide its facilities all across ...

Q: A bakery operating in competitive markets sells itsoutput for $20 per cake and rents ovens at $30 pe...

A: A bakery is operating in perfectly competitive market where it sells output for $20 per cake and ren...

Q: How is it possible for households to have a negative savings rate and what has caused this negative ...

A: Saving is the excess of income over consumption expenditure.  S = Y - C  

Q: Convey how the marginal revenue productivity of a resource relates to a firm’s demand for that resou...

A: In factor market, firms produce goods and services by hiring labour and capital. But in the short ru...

Q: In the taste-for-discrimination model, an increase in employer prejudice against African-American wo...

A: In labor economics, discrimination is mainly associated with the employer and employee relationships...

Q: What are the four categories used by the World Bank to classify nations on the basis of national inc...

A: ANSWorld Bank classifies economies into 4 categories based on the per capita GNI of the economy. The...

Q: “The federal funds rate can never be above the discountrate.” Is this statement true, false, or unce...

A: True The federal fund rates can never be above the discount rate as in this transaction market, the ...

Q: Imagine any number of visitors can enter Umstead Park at no charge. The value of a trip (V) as a fun...

A: Click to see the answer

Q: True or False: If Country B has an absolute advantage over Country A in producing bicycles, it will ...

A: Let us suppose an economy produces only two goods -  X and  Y. Opportunity cost, in simple economic ...

Q: Diagram a market in which the equilibrium dollar price of 1 unit of fictitious currency zee (Z) is $...

A: Given the equilibrium dollar price = $5 Equilibirum exchnage rate , $5 = Z1

Transcribed Image Text

You are deciding what apartment to rent in a somewhat hip neighborhood. There are two goods you care about: Square feet of housing space (H), and pupusas (F). You can rent an apartment for $2/square foot/month, and can purchase pupusas for $2/pupusa'. Your monthly budget is $1,600. a. Write down the equation for your budget constraint. Draw your budget constraint, with square feet of housing on the horizontal axis and pupusas per month on the vertical axis. b. Suppose that your preferences can be represented by the utility function: U(H,P) = 4H³pÅ Determine your optimal choice of housing and pupusas given your budget constraint. Label this point on your budget constraint, and draw an indifference curve through this point representing your preferences (your indifference curve should have the correct shape, and should show that your optimal point is, indeed, optimal, but it does not need to exactly correspond to your utility function). c. A media frenzy over the availability of excellent vegan street food results in an increase in rent. You can now rent an apartment for $6/square foot/month. Because you're a renter, you get no increase in income from this price change. Write down the equation for your new budget constraint, and graph it on the same graph from part a. Label this BC3. d. Determine your optimal choice of housing and pupusas given your new budget (BC2). Label this point on your new budget constraint, and draw an indifference curve through this point representing your preferences. e. Graphically decompose your change in housing from part b to part d into an income and substitution effect. Note: While you don't need to get exact answers for this decomposition, you should correctly identify the direction of each effect.