Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 9, Problem 23APA
To determine
Diminishing marginal rate of substitution.
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What happen to the marginal rate of substitution as we move along the non linear indifference
Javier consumes large pepperoni pizzas, Z, and boxes of graham crackers, G. Each of his
indifference curves reflects strictly diminishing marginal rates of substitution.
Where Z=8 and C= 4 (point R), his marginal rate of substitution between pizzas and boxes of
graham crackers equals -0.50 (MU/MU).
Will she prefer a bundle with 6 pizza(s) and 7 box(es) of graham crackers (bundle T) to her
current bundle?
OCEDID
12-
11-
10-
9.
21
Graham Crackers (G)
7-
6
6
34
24
0
0
T
Pizzas (2)
R
9 10 11 12
C
Can you explain why taking a monotonic transformation of a utility function doesn’t change the marginal rate of substitution?
Chapter 9 Solutions
Macroeconomics
Ch. 9.1 - Prob. 1RQCh. 9.1 - Prob. 2RQCh. 9.1 - Prob. 3RQCh. 9.1 - Prob. 4RQCh. 9.1 - Prob. 5RQCh. 9.2 - Prob. 1RQCh. 9.2 - Prob. 2RQCh. 9.2 - Prob. 3RQCh. 9.2 - Prob. 4RQCh. 9.3 - Prob. 1RQ
Ch. 9.3 - Prob. 2RQCh. 9.3 - Prob. 3RQCh. 9.3 - Prob. 4RQCh. 9.3 - Prob. 5RQCh. 9 - Prob. 1SPACh. 9 - Prob. 2SPACh. 9 - Prob. 3SPACh. 9 - Prob. 4SPACh. 9 - Prob. 5SPACh. 9 - Prob. 6SPACh. 9 - Prob. 7SPACh. 9 - Prob. 8SPACh. 9 - Prob. 9SPACh. 9 - Prob. 10SPACh. 9 - Prob. 11SPACh. 9 - Prob. 12APACh. 9 - Prob. 13APACh. 9 - Prob. 14APACh. 9 - Prob. 15APACh. 9 - Prob. 16APACh. 9 - Prob. 17APACh. 9 - Prob. 18APACh. 9 - Prob. 19APACh. 9 - Prob. 20APACh. 9 - Prob. 21APACh. 9 - Prob. 22APACh. 9 - Prob. 23APACh. 9 - Prob. 24APACh. 9 - Prob. 25APACh. 9 - Prob. 26APACh. 9 - Prob. 27APACh. 9 - Prob. 28APACh. 9 - Prob. 29APACh. 9 - Prob. 30APA
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Similar questions
- Suppose that the following utility function is given U(x,Y) = x+Y Which of the following is соrect? We have non-convex preferences since Law of diminishing Marginal Rate of Substitution holds and indifference curves are bowed inward towards the origin We have convex preferences since Law of diminishing Marginal Utility holds and indifference curves are bowed outward from the origin We have convex preferences since Law of diminishing Margina Rate of Substitution holds and indifference curves are bowed inward towards the origin We have convex preferences since Law of diminishing Marginal Rate of Substitution fails to hold and indifference curves are bowedinward towards the originarrow_forwardJavier consumes large pepperoni pizzas, Z, and boxes of graham crackers, G. Each of his indifference curves reflects strictly diminishing marginal rates of substitution. Where Z = 7 and C = 8 (point R), his marginal rate of substitution between pizzas and boxes of graham crackers equals -3.00 (MU₂/MUG). Will she prefer a bundle with 6 pizza(s) and 9 box(es) of graham crackers (bundle T) to her current bundle? D Graham Crackers (G) 12- 11 10- 9- 8- 3- 2- 1- 0- -O 1 N- -2 @. 3 4 T R 5 6 7 Pizzas (Z) -∞ 8 9 10 11 12arrow_forwardJulio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, the price of food is $2 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain. Julio's marginal rate of substitution equals A. 3.50, which is the price of clothing divided by the price of food. B. 0.29, which is the price of food divided by the price of clothing. O C. 0.29, which is the price of clothing divided by the price of food. D. 3.50, which is (minus) the slope of the budget line. O E. 3.50, which is Julio's level of satisfaction.arrow_forward
- Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, the price of food is $2 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain. Julio's marginal rate of substitution equals A. 3.50, which is the price of clothing divided by the price of food. B. 0.29, which is the price of food divided by the price of clothing. C. 0.29, which is the price of clothing divided by the price of food. D. 3.50, which is (minus) the slope of the budget line. E. 3.50, which is Julio's level of satisfaction. Suppose instead that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than your answer above? Explain. If Julio is instead consuming a bundle with more food and less clothing…arrow_forward10 Jason has the following utility function: U = F2C where F is food and C is clothing. Clothing is measured on the vertical axis while food is measured on the horizontal one. Derive Jason's Marginal Rate of Substitution. Does his Marginal Rate of Substitution stay constant along one of his indifference curves? Explain your answer clearlyarrow_forwardExplain what is meant by the Income and Substitution Effects? With the help of standard Indifference Curve analysis and appropriate diagrams, discuss the magnitude of the two effects given a change in the price of a good.arrow_forward
- The price of coke is $1.50 (y axis); the price of burger is $4.50 (x axis). Suppose that Ahmed does not consider the goods as perfect complements (and that there is no corner solution and the indifference curves are differentiable). If Ahmed has chosen his optimal consumption bundle by purchasing coke and burger, his marginal rate of substitution will be: A 1 coke for each burger. 1/3 coke for each burger. Indeterminate unless more information on Ahmed's marginal C utilities is provided. 3 cokes for each burger.arrow_forwardDoes a Budget constraint has only one individual indifference curve? Does every isocost line has a individual isoquant curve?arrow_forwardMrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution.arrow_forward
- Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Draw an indifference curve showing the optimum choice. Label the optimum as point A. What would be the marginal rate of substitution at the point that corresponds to the optimal consumption choice? Interpret the marginal rate of substitutionarrow_forwardSuppose that the following utility function is given U(X,Y) Which of the following is correct? We have non-convex preferences since Law of diminishing Marginal Rate of Substitution fails to hold and indifference curves are bowed outward from the origin We have non-convex preferences since Law of diminishing Marginal Rate of Substitution holds and indifference curves are bowed inward towards the origin We have convex preferences since Law of diminishing Marginal Utility holds and indifference curves are bowed outward from the origin We have convex preferences sincel Lawlof diminishing Marginal Rate of Substitution fails to hold and indifterence curves are bowed inward towards the originarrow_forwardTom has the following utility function: U = FC2 where F is food and C is clothing. Show that Tom’s Marginal Rate of Substitution is given by the expression, MRS = C/2F Does Tom’s Marginal Rate of Substitution stay constant as he moves down along one of his indifference curves? Explain your answer clearly. Suppose the price of food is €1 per unit and the price of clothing is €3 per unit and that Tom’s income is €36. Calculate the number of units of food and clothing that Tom consumes. Partial units are possible.arrow_forward
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