EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 3, Problem 3.2P
A
To determine
To Graph: the initial utility maximizing choice of the individual.
B
To determine
To calculate: Supposing that the price of Ts raises by $1 and the price of Ls reduces by $1.25, will the individual be able to afford for the initial consumption choices; and also explain in own point of view about the new budget constraints.
C
To determine
To explain: the reason why the utility increases.
D
To determine
To detect: the notion of substitution effect with regard to the given condition.
E
To determine
To find: with respect to the substitution effect explained in part D, the income effect.
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Students have asked these similar questions
Currently, Paula is maximizing utility by purchasing 5 TV dinners (T) and 4 Lean Cuisine meals (L) each week.
Graph Paula’s initial utility-maximizing choice.
Suppose that the price of T rises by $1 and the price of L falls by $1.25. Can Paula still afford
to buy her initial consumption choices? What do you know about her new budget constraint?
Use your graph to show why Paula will choose to consume more L and less T given her new budget constraint. How do you know that her utility will increase?
Some economists define the ‘‘substitution effect’’ of a price change to be the kind of change shown in part c. That is, the effect represents the change in consumption when the budget constraint rotates about the initial consumption bundle. Precisely how does this notion of a substitution effect differ from the one defined in the text?
If the substitution effect were defined as in parts, how would you define ‘‘the income effect’’ to get a complete analysis of how a person responds to a…
Dave currently consumes 10 hot dogs and 6 sodas each week. At his current consumption basket, his marginal utility for hot dogs is 5 and his marginal utility for sodas is 3.
If the price of one hot dog is $1 and the price of one soda is $0.50, is Dave currently maximizing his utility? If not, how should he reallocate his spending to increase utility?
Pam has a monthly budget of £120 to be spent on T-shirts and trainers. She could afford to buy two T-shirts and two pairs of trainers. She could also buy eight T-shirts. In each case, she would be spending her entire monthly allowance.
Calculate the price of a T-shirt and the price of a pair of trainers. Write down Pam’s budget equation and draw the corresponding budget line. Mark the two consumption bundles mentioned above. In your graph, clearly label the axes, the budget line, and calculate the coordinates of the points of intersection of the budget line with each axis. Interpret each of those points.
Discuss how Pam’s budget set would change if the price of a T-shirt doubles. Show the relevant changes graphically. How should Pam’s income change so that she could still afford to buy two T-shirts and two pairs of trainers?
Discuss how Pam’s budget constraint would change if the government imposed a tax of £3 per each pair of trainers.
Chapter 3 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 3.2 - Prob. 1MQCh. 3.2 - Prob. 2MQCh. 3.3 - Prob. 1TTACh. 3.3 - Prob. 2TTACh. 3.3 - Prob. 2MQCh. 3.4 - Prob. 1TTACh. 3.4 - Prob. 2TTACh. 3.5 - Prob. 1MQCh. 3.5 - Prob. 2MQCh. 3.7 - Prob. 1MQ
Ch. 3.7 - Prob. 2MQCh. 3.9 - Prob. 1MQCh. 3.9 - Prob. 2MQCh. 3.10 - Prob. 1TTACh. 3.10 - Prob. 2TTACh. 3.11 - Prob. 1MQCh. 3.11 - Prob. 2MQCh. 3.12 - Prob. 1TTACh. 3.12 - Prob. 2TTACh. 3.12 - Prob. 1MQCh. 3.12 - Prob. 2MQCh. 3.12 - Prob. 1.1TTACh. 3.12 - Prob. 2.1TTACh. 3.14 - Prob. 1MQCh. 3.14 - Prob. 2MQCh. 3.14 - Prob. 1TTACh. 3.14 - Prob. 2TTACh. 3.15 - Prob. 1MQCh. 3.15 - Prob. 2MQCh. 3 - Prob. 1RQCh. 3 - Prob. 2RQCh. 3 - Prob. 3RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Prob. 8RQCh. 3 - Prob. 9RQCh. 3 - Prob. 10RQCh. 3 - Prob. 3.1PCh. 3 - Prob. 3.2PCh. 3 - Prob. 3.3PCh. 3 - Prob. 3.4PCh. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Prob. 3.7PCh. 3 - Prob. 3.8PCh. 3 - Prob. 3.9PCh. 3 - Prob. 3.10P
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