2. A consumer has a utility function u(x, y) = xy⁰.5. (a) What is her demanded bundle under the budget constraint in 1(a)? (b) What is her demanded bundle under the budget constraint in 1(c)? (c) Is the consumer better off with government intervention?

2. A consumer has a utility function u(x, y) = xy⁰.5. (a) What is her demanded bundle under the budget constraint in 1(a)? (b) What is her demanded bundle under the budget constraint in 1(c)? (c) Is the consumer better off with government intervention?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Revealed Preferences and Budget Constraint Analysis

Revealed means “Let Out,” and Preference means “Choice”; Choice Reveals Preference.

Question

Budget constraint 1(a) = 2x+y=20 1(c) = 3x+3y=40

2.
A consumer has a utility function u(x, y) = xy0.5
(a) What is her demanded bundle under the budget constraint in 1(a)?
(b) What is her demanded bundle under the budget constraint in 1(c)?
(c) Is the consumer better off with government intervention?

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Step 1: define an utility function

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Step 2: calculate the demand bundle for budget constraint in 1(a)

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Step 3: calculate the demand bundle for budget constraint in 1(c)

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Step 4: determine if the consumer is better off with government intervention

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