ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:The price of a good changes. How could you calculate how much income the consumer would have to lose at
the old prices to be as well off as they are at the new prices (equivalent variation)?
Calculate the value of the expenditure function at the new prices and original utility minus the expenditure function at
the original prices and original utility
Calculate the value of the expenditure function at the new prices and new utility minus the expenditure function at the
original prices and original utility
Calculate the value of the expenditure function at the original prices and new utility minus the expenditure function at
the original prices and original utility
Calculate the value of the expenditure function at the original prices and original utility minus the expenditure function at
the original prices and new utility
Which of the following is NOT a good way to measure a change in consumer welfare from a price change?
Find the equivalent variation
Find the change in the value of their utility function
All of the above are good methods
Find the compensating variation
A consumer has preferences over two goods x and y. The government imposes a sales tax on good x. In most
cases, this will cause the ratio of x to y they consume to
Increase
Decrease
No change
A consumer currently consumes 10 units of a good. The government imposes a tax of $1 per unit of the good
they buy. The government will raise the most revenue on the good if
The good is elastic
It will always raise the same amount of revenue regardless of elasticity
The good is inelastic
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- Sally consumes two goods, X and Y. Her utility function is given by the expression U = 2XY3. The current market price for X is $20, while the market price for Y is $10. Sally's current income is $500. a. Write the equation for Sally's budget constraint. What is the slope of her budget line? b. Determine the X,Y combination which maximizes Sally's utility, given her budget constraint.arrow_forwardHelp mearrow_forwardJulie, who has $64, consumes only two goods: whistles (w), which cost $6 each and xylophones (x), which cost $7 each. Her preferences over these two goods can be represented by the utility function u(w, x) = 3w0.75 0.25 a) What is the optimal number of whistles for Julie to consume given this scenario? b) What is the level of utility Julie attains at this level of consumption? c) Suppose now that the price of whistles rises from $6 to $7. What is the magnitude of this price effect on whistles?arrow_forward
- Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. Units of J MUj Units of K MUk 1 56 1 32 2 48 2 28 3 32 3 24 4 24 4 20 5 20 5 12 6 16 6 10 7 12 7 8 If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing Multiple Choice 3 units of J and 7 units of K. 5 units of J and 5 units of K. 4 units of J and 5 units of K. 6 units of J and 3 units of K.arrow_forwardAssume one person has the following utility function : = x f yz and the total income y 2 xpx+ yPy + zpz u( x, y, z, What are the values of income (y) and prices (px.Py,Pz) will be when a person's demand strictly positive quantity of good x?arrow_forwardIf the utility function for a consumer is defined by U=6X^0.6Y^0.7 . Given that the consumer's income is 300 currency units and unit price of goods X and Y are 12 and 15 currency units respectively, calculate the equilibrium quantity of both goods. Compute the price elasticity of demand for both goods and interpret your results. If income and prices of the two goods increase by 50%, calculate the equilibrium quantities of both goodsarrow_forward
- Consider a person who consumes two goods, x and y, and has a utility function given by U(x, y) = In(x)+y. This person has an income of $100 and faces a price of $0.50 for good x and $1 for good y. Price of x then rises to $0.60. Solve for the compensating variation (CV) and equivalent variation (EV) of this price change. Show your work.arrow_forwardNonearrow_forwardplease answer asap with stepsarrow_forward
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