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- Jerry spends his entire budget on bread and gasoline. His preferences are complete, transitive, monotonic, and convex. For Jerry, bread is an inferior good that follows the law of demand. Moreover, his cross-price elasticity of demand for gasoline with respect to the price of bread is negative. Suppose the price of bread increases, all else constant. a. Create a chart to show the total, income, and substitution effects on bread and gasoline of the increase in the price of bread. b. Use budget lines and indifference curves to graphically illustrate the three effects. Be sure to label each effect on your graph (or through the chart from part a) and plot bread on the x-axis and gasoline on the y-axisWeekly income=$60 Burger= $12 each Books= $6 each Points A and B are utility maximizing choices. Price of burgers go from $6 each to $12 each. Part a) Draw the income and substitution effects on the graph. Part b) Are books normal or inferior good? Part c) Are burgers normal or inferior good? Part d) Draw demand curve for burgersQ1. You have Rs.10. The price of samosa is Rs.1 per unit. The price of a steak sandwich is Rs.3 The utility received from consuming samosa and steak is given below. a. How many samosas and steak sandwiches should be bought to maximize utility? Calculate utility maximizing quantities of samosas and steak sandwiches when income equals Rs.10 and the price of beer is Rs.1 and the price of steak sandwiches is Rs.3 using the utility b. maximizing rule No. of TU of samosa MU of No. of steaks TU of steaks MU of steaks samosas samosa 1 15 1 24 2 24 45 32 63 4 39 4 75 45 84 47 87
- 2. A consumer's demand for the single good x is given by x(p, y) = y/p, where p is the good's price, and y is the consumer's income. Let income be $7. Find the compensating variation for an increase in the price of this good from $1 to $4.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 answer using marginal analysis. 1A. Suppose that this consumer’s income elasticity for watches is 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? 2 Determine and explain the Profit Maximization output of a perfectly competitive firmMarginal utility is defined as the increment to total utility that results from the consumption of one more unit of some good or service. The equation for marginal utility is: Group of answer choices The change in total utility / the change in quantity The change in total utility / the change in total revenue The change in quantity / the change in total utility Total revenue / quantity demanded
- Advertisement is one of the factors that influence customers to increase demand for a specific good. Explain how the budget line shift due to price change of good Y when the price of good X remains the same.Two goods are complements if a decrease in the price of one good A) decreases the quantity demanded of the other good. B) decreases the demand for the other good. C) increases the quantity demanded of the other good. D) increases the demand for the other good.A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph? Select one: OA. Parallel outward shift of the line OB. Parallel inward shift of the line OC. Decrease the horizontal intercept COD. Increase the vertical intercept
- Diminishing Marginal Utility. Explain the law of diminishing marginal utility Discuss an instance where you have experienced this. Do consumers continue to purchase something even though its marginal utility is decreasing? Why or why not?Coke and Pepsi are perfect substitutes. Initially the price of Coke is higher than the price of Pepsi, later on, Coke reduced its price and become equal to the price of Pepsi, then again after that - Coke re-reduced its price and Pepsi became costlier than Coke. Draw the consumer’s demand curve for Coke using the optimal bundlesKatie consumes X and Y in fixed proportions: a units of X and b units of Y. To find Katie's demand functions for X and Y, a. set ratio of marginal utilities equal to the ratio of prices and solve together with the budget constraint. cross out b. solve the following two equations: aX=bY and PxX+PyY=I cross out c. solve the following two equations: bX=aY and PxX+PyY=I cross out d. you only need the equation of the budget line cross out e. find the corner solution where Katie spends all her income on the good that gives the highest marginal utility per dollar
