a. Suppose a consumer's income increases, resulting in an outward shift of her budget constraint from BC, to BC₂. Move the indifference curve to signify that good Y is an inferior good. Good Y
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- 1/Muhammad’s perceives canned tuna (Y) as an inferior good and fresh tuna (X) as a normal good. If his income increases by 100%, and his income elasticity of both types of tuna is 1. Show the effect of this increase in income on the change in his optimal choice of canned and fresh tuna, highlighting his income-consumption curve. Clearly label your graph. Reflect the proportional changes in your graph 2/ Assume a piece of jewelry and 2 consecutive drops in its price. Also consider Alia’s demand to be relative elastic in the price range from ?1 to ?2, and that she perceives jewelry as a Giffen good in the price range from ?2 to ?3. Draw her price-consumption curve with well-behaved preferences. Clearly label your graph.Problem 1: Suppose you have an income of $100 to spend on two goods. Good 1 costs $25 per unit. Good 2 costs $10 per unit. a) Write down your budget constraint. b) If you spend all your income on Good 1, how much can you buy? c) If you spend all your income on Good 2, how much can you buy? d) Graph your budget line. Please make sure your line passes through the appropriate points. Also, be sure to label the axes. I e) Suppose the price of Good 2 falls to $5 per unit. Draw the new budget line on the graph in Part d). f) Suppose your income falls to $75 to spend on the two goods, where the price of Good 1 is $25 and the price of Good 2 is $5 per unit. Draw the new budget line on the graph in part d). g) Highlight the area on your graph representing bundles you could afford in your budget equation from part a) that you cannot afford with the budget line in part f). h) Highlight the area on your graph representing bundles you can afford in your budget equation from part f) that you could…he Calculus of Utility Maximization and Expenditure Minimization -End of Appendix Problem uppose that there are two goods, X and Y. The price of X is $2 per unit, and the price of Y is $1 per unit. There are two onsumers, A and B. The utility functions for the consumers are UA(X,Y)= X05.05 UB(X,Y)= X0.8y0.2 Consumer A has an income of $100, and Consumer B has an income of $300. Using Lagrangians, solve for the optimal bundles of goods X and Y for both consumers A and B. a. The optimal bundle for consumer A is X = 25 and Y* = 50 - b. The optimal bundle for consumer B is X = 120 and Y* = 60
- A consumer’s weekly income is $5000, the price of a cell phone is $1250, and the price of a watch is $500. What quantity of cell phones and watches will maximize the consumer’s utility if they spend their entire weekly income on cell phones and watches? Explain your answer using marginal analysis. 1A. Suppose that this consumer’s income elasticity for watches is 5.4. what does this indicate about watches? If the cross-elasticity calculates to 0.8 what does this indicate about the relationship between watches and cell phones? 2 Determine and explain the Profit Maximization output of a perfectly competitive firm2. Muhammad's perceives canned tuna (Y) as an inferior good and fresh tuna (X) as a normal good. If his income increases by 100%, and his income elasticity of both types of tuna is 1. Show the effect of this increase in income on the change in his optimal choice of canned and fresh tuna, highlighting his income-consumption curve. Clearly label your graph. Reflect the proportional changes in your graph.Individual and Market Demand - End of Chapter Problem a. Suppose a consumer's income increases, resulting in an outward shift of her budget constraint from BCĮ to BC₂. Move the indifference curve to signify that good Y is an inferior good. Good Y Good X BC BC 2
- A consumer has income of $15,000. Masks costs $35 per mask, and sanitizers costs $70 per bottle. solve questions 4 and 5 Draw the consumer’s budget constraint (put mask on the horizontal axis). What is the slope of this budget constraint? Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both masks and sanitizers are normal goods. Illustrate what happens if a mask is an inferior good. The price of masks rises from $35 to $40 per mask, while the price of sanitizers is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. Under what circumstance(s) if any can an increase in the price of sanitizers induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.A consumer has income of $15,000. Masks costs $35 per mask, and sanitizers costs $70 per bottle. Draw the consumer’s budget constraint (put mask on the horizontal axis). What is the slope of this budget constraint? Suppose his income increases from $15,000 to $20,000. Illustrate what happens if both masks and sanitizers are normal goods. Illustrate what happens if a mask is an inferior good. The price of masks rises from $35 to $40 per mask, while the price of sanitizers is unchanged. For a consumer with constant income of $15,000, show what happens to consumption of both goods (assume both goods are normal goods). Decompose the change into income and substitution effects. Under what circumstance(s) if any can an increase in the price of sanitizers induce a consumer to buy more of that good? Explain. Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation.Draw the following scenario: Muhammad's percelves canned tuna (Y) as an inferior good and fresh tuna (X) as a normal good. If his income Increases by 100%, and his Income elasticity of both types of tuna is 1. Show the effect of this increase in income on the change in his optimal choice of canned and fresh tuna, highlighting his income-consumption curve. Clearly label your graph. Reflect the proportional changes in your graph. The graph may be something like that
- 7) By definition, an inferior good is aa) Good for which demand decreases when income increase. b) Want that is not expressed by demand.c) Normal substitute good.d) Good for which demand decreases when its price rises.8) The study of the decisions of individual units in the economy is known asa) Microeconomicsb) Macroeconomicsc) The Study of incentivesd) Ceteris Paribus Study 9) If a good has a price, then it is considered _______ ?Chad perceives canned beans (Y) as an inferior good and fresh tuna (X) as anormal good. If his income increases by 100%, and his income elasticity of both types of goods is 1. Show the effect of this increase in income on the change in his optimal choice of canned beans and fresh tuna, highlighting his "income-consumption curve."Clearly label your graph. Reflect the proportional changes in your graph.3) Indifference Curves and budget lines. a) Using a properly labeled indifference graph for good X (horizontal axis) and Good Y, illustrate how the indifference curves and budget lines would look to achieve a normal downward sloping demand curve for Good X. Also show the demand curve for good X on a properly labeled graph. b) Explain what is happening with the substitution effect and income effect. c) Explain how these effects (sub and inc) would differ if the demand curve was very elastic. (consider the slope of the curve).
