ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Consider a consumer with preferences over two goods, x and y. Preferences are given by U(x,y) = xy. Suppose the consumer’s income is $72 and the price of good y is $1.
Suppose the price of good x is initially $4 and subsequently rises to $9. Find the numerical values of the income and substitution effects on the consumption of good x
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- A consumer can consume three goods, x₁, x2, and x3. In the markets where she buys them, she is a price-taker and faces prices for the three goods equal to P₁, P₂, and p3, respectively. The consumer has m dollars to spend. Her preferences can be represented by the following utility function: U(x₁, x₂, x3) = x₁x²x². X a) Derive the consumption bundle that maximizes the consumer's utility, subject to her budget constraint. b) Show that the optimal consumption bundle found in part a) is a global maximum. IMG_4479-2.pngarrow_forwardConsider the single-good utility function u(x) = 3x². du(x) a) Find the marginal utility of x, MUx = dx b) Plot the utility function and marginal utility function on two separate graphs. c) Does this utility function satisfy the law of diminishing marginal utility? Explain.arrow_forward1) Max chooses to purchase movie tickets and restaurant meals every week with his $100. If the price of a movie ticket is $20 and the price of a restaurant meal is $25, then the slope of his budget constraint will be, a) 1/5 b) -1/5 c) 4/5 d) -4/5 2) Marginal rate of substitution(MRS) is the rate at which consumer is willing to trade one good for another. It must be true that: a) MRS is the slope of an indifference curve in reference to a particular bundle of goods. b) MRS is not the same along an indifference curve that is of usual shape. c) MRS is same along an indifference curve that is of usual shape. d) Both a) and b).arrow_forward
- Assume the price of good A goes up and the consumer decreases purchases of good A and decreases purchases of all other goods. How might you explain this lack of substitution into other goods? The indifference curve for good A and other goods must be linear The income effect is greater than the substitution effect Good A is a luxury item Good A is inferiorarrow_forwardA student has a lunch utility function U(S, P) 8S + 3P, where S is number of salads per month and P is number of pizzas per month. The price of a salad is $5, the price of a pizza is 8, and his monthly income for lunch is $80. a) Derive the equation representing the consumer's demand for Salad. Represent the demand for Salad graphically. b) The price of Salad goes up to $25 and the price of Pizza does not change. Compute and represent graphically the new equilibrium of the student. What can you tell about the substitution effect on Salad and pizzaarrow_forwardSuppose that Sam has a utility function u(x, y)= x+y where x is the amount of good 1 and y is the amount of good 2. The price of good 2 is $20, and the income is $ 90. With the $5 price decrease of good 1 from $10 to $5, then what is the substitution effect and income effect on the demand for good 1?arrow_forward
- For the utility function, U = 2x1/2 + y What are the income and substitution effect of price changes in Px and Py respectively?arrow_forwardSuppose the function for the utility from good c is denoted as U(c)=2c1/2 . Which of the following expressions indicates the marginal utility of c?arrow_forward
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