Suppose that an agent has utility function U(x, y)=x+2y. What information is necessary to calculate the agent’s optimal consumption of Good X?
price of good X, price of good Y, and income
An individual demand curve can be derived from the ________ curve.
Which of the following is true regarding utility along a price-consumption curve?
-It changes only for normal goods
-It changes only if income changes.
-It changes from point to point.
-It is constant.
it changes from point to point
Jane has utility function U(x,y)=x^4y^5. The marginal utility of Good X is MUX(x,y)= 4x^3y^ 5 and the marginal utility of Good Y is MUY=5x^4y^4. The price of X is PX, the price of Y is PY, and Jane’s income is I. What is the expression of her consumption of Y as a function of prices and income (her optimal consumption is determined by the tangency rule)?
Qy(Px, Py, I)= (4I)/(5Py).
Qy(Px, Py, I)= (5I)/(9Py).
Qy(Px, Py, I)= (4I)/(3Py).
Qy(Px, Py, I)= (5I)/(4Py).
Qy(Px, Py, I)= (9I)/(5Py)
Jane has utility function U(x,y)=x4y5. The marginal utility of Good X is MUX(x,y)= 4x3y5 and the marginal utility of Good Y is MUY=5x4y4. The price of X is PX, the price of Y is PY, and Jane’s income is I. What is the function of her demand curve of Good X when I=100 and PY=5?
QX(PX)= 400/(9PY)
QX(PX)= I/9
QX(PX)= 500/(9PY)
QX(PX)=100-5PX
QX(PX)= 400/(9PX)
Jane has utility function U(x,y)=x4y5. The marginal utility of Good X is MUX(x,y)= 4x3y5 and the marginal utility of Good Y is MUY=5x4y4. The price of Good X is PX, the price of Y is PY, and Jane’s income is I. What is the function of her Engel curve of Good X if PX=4 and PY=5?
QX(I)= I/4
QX(I)= 500/(9PX)
QX(I)= 400/(9Px)
QX(I)= I/5
QX(I)= I/9
Jane’s Engel curve for the consumption of food shows:
Jane’s consumption of food as a function of prices, all the other constant.
Jane’s consumption of food as a function of income, all the other constant
Jane’s consumption of food as a function her consumption of the other goods.
Jane’s consumption of food as a function of income and prices.
Jane’s consumption of food as a function of the price of food, all the other constant.
Jane’s consumption of food as a function of income, all the other constant
The Engel curve bends backward implies that the good is a normal good at low income level and is an inferior good at a high income level.
True or False?
Suppose the demand function of Good X is QX=0.5I/PX and that of Good Y is QY=0.5I/PY. The two goods, X and Y, are:
A) independent
B) substitutes
C) complements
independent
Suppose the demand function of Good X is QX=I/(PX+PY) and that of Good Y is QY=I/(PX+PY). The two goods, X and Y, are:
complements
undetermined
independent
substitutes
The price elasticity of demand for gasoline is estimated by some researchers to be -0.02. Approximately, what percentage change in the price of gasoline induces an increase of 1% in its consumption?
Jose works for the economic research department of the local utility company in his city. He is interested in the effect of a price increase in the demand for their services. He calculates that the price elasticity for the demand is -2.3. This means:
A)Cable services are Giffen goods.
B)A unit increase in price will induce a 2.3 unit of services decrease in consumption.
C)Demand will not change if price is increased.
D)Demand will increase by 2.3% if price increases by 1%.
E)Demand will fall approximately by 2.3% if price increases by 1%
1/2 times the max price consumers are willing to pay minus the actual price times quantity demanded at said price
Both Sally and Sam receive a 5% raise in a single year. Sally increases her demand for ground beef, whereas Sam decreases his demand for ground beef.
A)This is possible if ground beef is a normal good for Sally, and is an inferior good for Sam.
B)This is only possible if Sally has lower income than Sam.
C)This is impossible.
D)This is possible if ground beef is a normal good for Sally, and is an inferior good for Sam.
A change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant, is referred to as:
the income effect.
the substitution effect.
the total effect of a price change.
the wealth effect.
Which of the following is true concerning the substitution effect of a decrease in price?
A)It will lead to an increase in consumption only for a Giffen good.
B)It will lead to an increase in consumption only for an inferior good.
C)It will lead to an increase in consumption only for a normal good.
D)It always will lead to an increase in consumption.
Suppose the price elasticity of demand of movie tickets is equal to -1 throughout the curve. How do total expenditures on movie tickets vary along the demand curve?
A)Total expenditures remain the same between points along the demand curve.
B)Since the quantity is sold at lower and lower prices, total expenditures decrease as quantity demanded increases.
C)Total expenditures increase through the upper portion of the curve and then decrease at low price levels.
D)Since quantity demanded increases as price decreases, total expenditures increase.
Suppose price elasticity of demand of artichoke is equal to -0.5. When the price of artichokes is increases slightly, the total expenditure by consumers on artichokes will ________ and the number of artichokes sold will ________.
A)fall; fall
B)rise; fall
C)fall; rise
D)rise; rise
Denote the consumption of food by x and the consumption of all other goods by y. The demand for food as a function of prices and income is given by:
Qx(Px,Py,I)=(3I)/(4Px). What is the price elasticity for the consumption of food when income I=100, PX=3, and PY=5?
Suppose Good X and Good Y are perfect complements and the kinks of indifference curves fall of the line y=3x. The price of Good X is denoted by PX . We also know that PY=10 and income level is I=200. Then the demand function of Good X is given by ___?
Qx(Px)=(200-10y)/Px
Qx(Px)=200/(Px+30)
Qx(Px)=200-10Px
Qx(Px)=200/(Px+10)
for a normal good, when the price of the good rises, the substitution effect results in the person buying ____________ of that good.
For a giffen good:
When the price of a giffin good falls, the substitution effect results in an ____________ in the consumption of that good. However, as the price of rice falls, there is an increase in real purchasing power, and because a giffin good is such an inferior good, the income effect will result in a consumer _______________ the consumption of rice.
Overall, the income effect dominates for the good to be a Giffin good, thus overall, a consumer will buy _________ of the good.
when the price of a giffin good falls, the substitution effect results in an increase in the consumption of that good. the income effect will result in a consumer decreasing the consumption of rice. overall, a consumer will buy less of the good.
when demand is less than 1 in value, the demand is considered _____________ and consumer's total expenditure on the product/ a firm's revenue ______________ when the price increases.
when demand is less than 1 in value, the demand is considered inelastic and consumer's total expenditure on a product/a firms revenue increases when the price increases
mathematically, price elasticity of demand is defined as
percentage change in quantity demanded divided by percentage change in price
when the demand is greater than 1 in value, demand is considered elastic and consumers expenditure on a product/ a firm's total revenue decreases when the price increases
when demand is equal to negative 1 and is unitary elastic, consumers total expenditure on the product/ a firms total revenue does not change when the price increases
what is the derivative needed to compute price elasticity analytically?
derivative of the equation given, Q'(P) multiplied by P/Q
upward sloping engel curves means that more income leads to ________ consumption.
if indifference curves are upward sloping, this violates which assumption?
downward sloping thin lines that never intersect each other
if good X and good Y are perfect complements and the kinks of your indifference curves follow the 45 degree line, as long as your income and the prices are positive, you will choose a market basket at a kink.
True or False?
true. if good X and good Y are perfect complements and the kinks of your indifference curves follow the 45 degree line, as long as your income and the prices are positive, you will choose a market basket at a kink.
True or False?
If good X and good Y are perfect substitutes, it may be optimal to consume a market basket where the MRS is not equal to the price ratio.
true. if a good X and good Y are perfect substitutes, it may be optimal to consume a market basket where the MRS is not equal to the price ratio.
if Good X and Good Y are perfect substitutes, and the slope of the indifference curves is always -1, then you will only consume some quantity of both goods if the prices of them are equal.
True or False?
if Good X and Good Y are perfect substitutes and the slope of the indifference curves is always -1, then you will only consume some quantity of both goods if the prices of them are equal.
if Good X and Good Y are perfect substitutes and the slope of the indifference curves is always -1, then you will only consume the good with the lowest price. True or false?
true. if good X and good Y are perfect substitutes and the slope of the indifference curves is always -1, then you will only consume the good with the lowest price.
true. The rule that MRS equals price ratio only works when the indifference curves are smooth and the solution is interior. this means that this rule does not work for perfect substitutes and complements.
when the numbers are of Px, Py, and I are given, set MRS equal to the slope of the price ratio.
Ex: MRS of 2x/3y= 2
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