Suppose a student has monthly income of Rs 10,000. He consumes only two commoditiesSandwich and Shawarma. The cost of Sandwich is Rs 50 each, and the cost of Shawarma isRs 100 each.a) Draw the student's budget constraint. What is the slope of his budget constraint?b) Suppose student gets a raise, so his income increases from Rs 10,000 to Rs 12,000. Showwhat happens to consumer optimal consumption choice if both Sandwich and Shawarmaare normal goods. Now show what happens if Sandwich is an inferior good.c) Suppose consumer income decreases to Rs. 8,000. Show what happens if both Shawarmaand Sandwich are normal goods. Now show what happens if Sandwich is an inferior good.

Budget constraint represents the various combinations of two goods that a consumer can purchase with…

Answered: Suppose a student has monthly income of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q1. Jason has preferences defined over novels (good x) and DVDs (good y) described by the utility function U(x,y)= x2y2. He has income of $120; novels cost $5 each, while DVDs are priced at $15 each. a) Calculate Jason's optimal consumption bundle, AND his maximized utility level Suppose the price of novels increases to $7.5, while the price of DVDs and income are unchanged. b) In the same diagram, draw his old and new budget constraint; AND calculate his nep optimal bundle. c) Calculate the Total Effect (TE), Substitution Effect (SE) and Income Effect (E) of novels associated with the price increase of novels; AND SHOW them in your initial diagram. (Hint: keep 2 decimals if need)
Refer to the following table. Suppose strawberries cost $1 and apples cost $2. SHow all the formulas used and your calculations. What is marginal utility (MU) of the 3rd apple? What is marginal utility (MU) of 6th strawberry? What is the marginal utility per dollar spent on the 3th apple? What is the marginal utility per dollar spent on the 6th strawberry? Which of the combinations of strawberries and apples satisfies the following rule? How do you know?
Nadia likes spare ribs, R, and Fried chicken, C. Her utility function is U(R,C) = 10R2C Her marginal utilities are MUR=20RC ? and MUC=10R2 Her weekly income is $90, which she spends on only ribs and chicken. A) If she pays $10 for a slab of ribs and $5 for a chicken, what is her optimal consumption bundle? Show that her budget line, indifference curve, and optimal bundle, e1, in a diagram. B) Suppose the price of chicken double s to $10. How does her optimal consumption of chicken and ribs change? Show her new budget line and optimal bundle, e2, in a diagram.
Q.3. Suppose a student has monthly income of Rs 10,000. He consumes only two commodities Sandwich and Shawarma. The cost of Sandwich is Rs 50 each, and the cost of Shawarma is Rs 100 each.a) Draw the student’s budget constraint. What is the slope of his budget constraint? b) Suppose student gets a raise, so his income increases from Rs 10,000 to Rs 12,000. Show what happens to consumer optimal consumption choice if both Sandwich and Shawarmaare normal goods. Now show what happens if Sandwich is an inferior good.c) Suppose consumer income decreases to Rs. 8,000. Show what happens if both Shawarmaand Sandwich are normal goods. Now show what happens if Sandwich is an inferior good.
Solve these consumer choice problems: a. Suppose a consumer has a utility function u(x, y) = xy + 7y facing prices p,=S1 and p,=$2 and income I = $10. Draw a diagram and find the consumer's optimal consumption of goods x and y. b. Suppose that you are in a situation where you can afford purchasing 3 units of good x and 4 units of good y. You discover that another affordable bundle of 5 units of good x and 2 units of good y causes you to reach the same level of utility. Assume that your utility function and budget line are both well behaved. Are you maximizing your utility by consuming your original bundle? Why or why not? Propose an alternative, affordable bundle that would yield a higher utility level than either of the original bundles.
QUESTION 4 Linguini and Colette consume only éclair (x,) and profiterole (x2). Linguini has utility function UA = x4x4 and Colette has utility function UB = 2xfx. Linguini is endowed with 10 éclair (x,) and 3 profiterole (x), while Colette is endowed with 20 éclair (x,) and 9 profiterole (x2). (a) Draw an Edgeworth box with x, on the horizontal axis and x, on the vertical axis. Position Linguini on the bottom left corner and Colette on the top right comer. Indicate the total number of units of x, and x2. Label the endowment allocation. (b) Derive the equation of the contract curve, ie., find x(x). In your graph in (a), draw the contract curve.
Suppose Al is currently consuming five movies and two concerts per month. If his utility function is given by U = 15MC, where Mrepresents the number of movies seen and C represents the number of concerts attended, Al's total utility is equal to: 75 15 150 10 30
Nadia likes spare ribs, R, and Fried chicken, C. Her utility function is U(R,C) = 10R2C Her marginal utilities are MUR=20RC ? and MUC=10R2 Her weekly income is $90, which she spends on only ribs and chicken. A) If she pays $10 for a slab of ribs and $5 for a chicken, what is her optimal consumption bundle? Show that her budget line, indifference curve, and optimal bundle, e1, in a diagram. B) Suppose the price of chicken double s to $10. How does her optimal consumption of chicken and ribs change? Show her new budget line and optimal bundle, e2, in a diagram.
Vijaya spends Rs. 150 per month on coffee and buns at the cafeteria. A cup of coffee costs Rs. 15 and a bun costs Rs. 10. a) Write the equation for Vijaya’s cafeteria budget constraint. b) Assume that Vijaya never drinks coffee without eating one bun, and never eats buns without drinking coffee. How much of each will she consume? c) What do we call goods that are always consumed in the same proportion?
Suppose you had a budget of $20.00 and the prices of a burger and a slice of pizza are $5.00 and $2.00 respectively. What would be your optimal consumption bundle?
27. Mike spends all his income on films (F) and concerts (C). Films cost $10 and concertscost $30. Mike’s preferences can be described by the utility function: U = F C and hence themarginal utility of films is C and the marginal utility of concerts is F. Which of the followingbundle will Mike purchase? (Hint: You do not need to know income in $ amount. Answerthe question using the tangency condition.)(a) Mike purchases 30 concerts and 10 films a month.(b) Mike purchases 10 concerts and 30 films a month.(c) Mike purchases 20 concerts and 20 films a month.(d) Mike purchases 5 concerts and 10 films a month.
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