(II) The consumer has the income m = 50 and prices of the two goods are p 1 = 5 and p2 = 2. (a) Find the budgetset of this consumer. What is the opportunity cost of good 2 in terms of good 1? (b) Suppose the price of good 2increases to p 2' = 10. What is now the budget set. (c) Suppose now that also income increases to m = 250 and thatthe price of good 1 increases to 25. What is now the budget set? Compare with the budget set you found in (a) andcomment!

Ans. ) Given the question that there is a consumer whose total income (m) is 50 and the prices of…

Answered: (II) The consumer has the income m = 50…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1QR

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2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x, and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x1 and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal con- sumption bundle? Explain what you your answer means. (e) Suppose the price of x, increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint.
2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x1 and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x, and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal con- sumption bundle? Explain what you your answer means. (c) Suppose the price of x, increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint. (d) Explain the impact of the substitution effect and the income effect of the price change in part (c) on the individual's consumption of x, and x2. (Hint: For full credit, explain both the separate and combined impacts of substitution and income effects on x1. Do the same for x2).
1-Which of the following provides a higher marginal utility, a diamond or a pint of water? A dimond A point of water They prodive about the same marginal utility 2- Unit of Apples MU of Apple Unit of Oranges MU of Oranges 1st 4 1st 9 2nd 3 2nd 3 3rd 1 3rd 2 4th 0 4th 0 Suppose the price of an apple is $2, and the price of an orange if $3. You have a budget $10 for these two items. What would you put in your basket first? an Apple an Orange You are indifferent between putting an apple or an orange in your basket. We do not have enough information to answer this question.
If only the prices of goods in a two-good society quadruple, what will happen to the budget line? A Insufficient information is given to determine what effect the change will have on the budget line but we know society is worse-off. There will be no effect on the budget line. C The slope of the budget line may either increase or decrease. D The intercepts of the budget line will increase.
Answer the following short questions:a. Suppose that a consumer’s preferences between goods x andy are represented by the utility function u(x, y) = x^2 + 16xy + 64y^2. If these two goods have the same price, describe the optimal consumptionchoice of this consumer.b. Suppose that when the price of a good change, the incomeand substitution effects change the consumer’s demand for that goodin opposite directions.i. Is this good a normal or an inferior good? Explain.ii. Is this good a Giffen or an ordinary good? Explain.c. Is the following statement true or false? The differencebetween a monopolist’s marginal cost and its profit-maximizing price issmaller when the demand is more elastic.
Which budget constraint panel in Figure below shows the combined effects of an increase in the price of oranges and a decrease in the price of apples? (b) (c) (d) Oranges Oranges Oranges KREKE Apples -(a) Oranges Apples O panel a panel b panel c Apples O panel e Onone of the above Apples (e) Oranges Apples
18) Joe's budget constraint equals 500 = 2F + 100S, where $500 is Joe's income, $2 is theprice of food (F, y-axis) and $100 is the price of shelter (S, x-axis). How much food canJoe buy if he buys one unit of shelter?A) 2 unitsB) 200 unitsC) 250 unitsD) 400 unitsE) 300 units
Which budget constraint panel in Figure below shows the combined effects of an increase in the price of oranges and a decrease in the price of apples? (e) (c) Oranges (a) (b) (d) Oranges Oranges Oranges Oranges Apples Apples Apples Apples Apples O panel a panel b panel c O panel e O none of the above
1. Say that there are two goods in the world, books and video games. Say that we observed two of Jim's choices: he chooses bundle A from the budget set bounded by budget line 1, and the bundle B from the budget set bounded by budget line 2. video games B A budget line 2 budget line 1 books a) For each of the two goods, based on the diagram: is the good normal, inferior, or we can't say for sure? Is the good ordinary, Giffen, or we can't say for sure? Explain. b) For which of the two budget lines is the opportunity cost of a book higher and why? What does that statement mean in the context of this model?
Let the following table represents the total utility of a given consumer, in the cardinal utility approach A) Calculate the MUx and MUy and fill the table in the 4th and 5th rows. B) If the two products (X&Y) are free goods how many of X and Y should the cons consumer take to maximize utility? C) What is the maximum utility of X and Y if they are free?. D) Assuming the consumer has any amount of money (enough budget) how many of X and Y should the consumer buy, to maximize utility? E) What is the total utility of X and Y? F) Let now price of X is 4 birr per unit and price of Y is 2 birr per unit and budget of the consumer for consumption of X and Y is 20 birr. Given budget constraint how many of X and Y should the consumer buy to maximize utility? G) What are the total utility of X and Y
17) A ssume a consumer has $40 to spend and for both products the marginal utilities are shown in the following table: Quantity MU MU 1 35 80 2 20 40 3 12 18 Assume that each product sells for $10 per unit. a) How many units of each product will the consumer purchase? b) Assume the price of product B rises to $20 per unit. How will this consumer allocate her budget now? c) If the prices of both products rise to $20 per unit, what will be the budget allocation?
The graph of the budget line below has dollars on the vertical axis and food on the horizontal axis. Which statement is false? D 100 Food The vertical intercept represents all money available for purchasing. The distance OA shows the amount of money spent on OD amount of food. If the amount of money available is known in this graph, then the absolute and relative price of food is known also. The horizontal intercept represents all the food the consumer could purchase with the budget available.

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