EBK MICROECONOMICS
5th Edition
ISBN: 9781118883228
Author: David
Publisher: YUZU
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Chapter 4, Problem 4.9P
To determine
Optimal consumption basket of the consumer.
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Ellie spends £20 on Energy drink (E) and Juice (J). Her preferences for these goods can be described by the following utility function: U ( E,J) = 2E + J^2 ( J squared) - J (MUt = 2, MUj = 2J - 1) Suppose that one energy drink costs £1.60 while one carton of Ellie’s favourite Juice costs £4.00.
a) Find Ellie’s optimal consumption bundle. Provide both algebraic and graphical solution. Explain your reasoning.
b) Discuss how Ellie’s optimal consumption choice would change when her disposable budget changes.
c) If the price of energy drinks increases to £2.00 per can, how should the price of Juice change so that Ellie can be as well off as before this change in prices?
d) Discuss the implications of the price change from c) on Ellie’s optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Ellie’s demand for Energy drink and/or Juice.
Suppose you had a budget of $20.00 and the prices of a burger and a slice of pizza are $5.00 and $2.00respectively. What would be your optimal consumption bundle
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?
Chapter 4 Solutions
EBK MICROECONOMICS
Ch. 4 - Prob. 1RECh. 4 - Prob. 2RECh. 4 - Prob. 3RECh. 4 - Prob. 4RECh. 4 - Prob. 5RECh. 4 - Prob. 6RECh. 4 - Prob. 7RECh. 4 - Prob. 8RECh. 4 - Prob. 9RECh. 4 - Prob. 10RE
Ch. 4 - Prob. 4.1PCh. 4 - Prob. 4.2PCh. 4 - Prob. 4.3PCh. 4 - Prob. 4.4PCh. 4 - Prob. 4.5PCh. 4 - Prob. 4.6PCh. 4 - Prob. 4.7PCh. 4 - Prob. 4.8PCh. 4 - Prob. 4.9PCh. 4 - Prob. 4.10PCh. 4 - Prob. 4.11PCh. 4 - Prob. 4.12PCh. 4 - Prob. 4.13PCh. 4 - Prob. 4.14PCh. 4 - Prob. 4.15PCh. 4 - Prob. 4.16PCh. 4 - Prob. 4.17PCh. 4 - Prob. 4.18PCh. 4 - Prob. 4.19PCh. 4 - Prob. 4.20PCh. 4 - Prob. 4.21PCh. 4 - Prob. 4.22PCh. 4 - Prob. 4.23PCh. 4 - Prob. 4.24PCh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Prob. 4.28PCh. 4 - Prob. 4.29PCh. 4 - Prob. 4.30P
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