Charlie's utility function is where (1-a) U(x A,xв) = Axx A> 0 and a > 0 are positive parameters. What is the own price elasticity of Demand for good XA
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- Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?Income effects depend on the income elasticity ofdemand for each good that you buy. If one of the goodsyou buy has a negative income elasticity, that is, it is aninferior good, what must be true of the income elasticityof the other good you buy?a) A consumer has a utility function given by U = x025 y0.75 He has an income of £100, the price of good x is £5 and the price of good y is £10. How much of the 2 goods x and y does the consumer buy? Take a picture of your workings and upload with your answer, or type out your workings. b) For the utility function above, what is the cross-price elasticity of demand for good x with respect to the price of good y? Take a picture of your workings and upload with your answer, or type out your workings. c) For the utility function above, what is the elasticity of demand of good x with respect to its own price? Take a picture of your workings and upload with your answer, or type out your workings.
- A consumer's weekly income is $5000, the price of a cell phone is $1250, and the price of a watch is $500. What quantity of cell phones and watches will maximize the consumer's utility if they spend their entire weekly income on cell phones and watches? Explain your using I. answer marginal Suppose that this consumer's income elasticity for watches is analysis. 5.4. what does this indicate about watches? If the cross-elasticity calculates to 0.8 what does this indicate about the relationship between watches and cell phones?How do you think income elasticity affects a normal good versus an inferior good? Provide an example.Quèstion 9 Income elasticity will be negative for inferior goods O True O False
- |Unit 3 Midterm Economics A docs.google.com/forms/d/e/1FAlpQLSfDzcagnpq9EUKBs3AWMb. a change in quantity demanded for one product or service causes a change in simple demand for a related product or service. * In 2. O Elasticity of Demand O Cross Elasticity of Demand O Diminishing Marginal Utility O Cost-Benefit Analysis O All of These O None of These The rules of the price system operate in all markets of a capitalist/market economy. The market where consumers earn income Market. by selling resources to business resources is called O ConsumerWhat is the relationship between price elasticity and position on the demand curve? For example, as youmove up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that? Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?How is tomato related to cabbage? Compute and interpret the cross elasticity of supply of cabbage with respect to the dealer’s price of complete fertilizer. If the price of complete fertilizer increases by 20 percent, by how much will the supply of cabbage change, holding other factors constant?
- What is the relationship between price elasticity and position on the demand curve? For example, as youmove up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that? Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy? Needs explanationSuppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Yis -4. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. If you are entering a negative number, be sure to use a (-) sign. a. The price of good X decreases by 5 percent. percent b. The price of good Yincreases by 10 percent. percent c. Advertising decreases by 3 percent. percent d. Income increases by 4 percent. 4 percentFor normal goodsA) the substitution effect of a price decrease will decrease the quantity of the good demanded while theincome effect of a price decrease will increase the quantity of the good demanded.B) the substitution and income effects of a price decrease will both increase the quantity of the gooddemanded.C) the substitution and income effects of a price decrease will both decrease the quantity of the gooddemanded.D) the substitution effect of a price decrease will increase the quantity of the good demanded while theincome effect of a price decrease will decrease the quantity of the good demanded.
