Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 4, Problem 4CACQ
To determine
To analyze:
The effect of gift card on the purchase of the inferior good.
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Consider your preferences for Gasoline (X) and a composite good (Y). Your utility function is U(X,Y) = X^(2/5 )+ Y^(2/5). You have an annual income of $40,000. Suppose the price of the composite good is $1.
a) Due to shortages, the government has introduced a rationing system such that you can only consume a maximum of 5,000 liters a year at $1 a liter. What would be your optimal consumption bundle?
b) The government removes the rationing system and the free market price of gasoline jumps to $2. What would be your new optimal consumption bundle? Are you better off with or without the rationing? Show by finding the utility levels.
c) Illustrate your solution in a clearly labeled graph.
Because one’s productivity in the workplace is likely to be affected by one’s health, investment in health could increase earnings to the extent that one might spend money on health care without reducing his or her consumption of other goods.
Because one’s productivity in the workplace is likely to be affected by one’s health, investment in health could increase earnings to the extent that one might spend money on health care without reducing his or her consumption of other goods.
True or False
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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