) Explain intuitively (or give a specific example) and show graph the following: (a) Two indifference curves cannot intersect. (b) Two goods that are perfect substitutes. (c) Two goods that are perfect complements.
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- 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).Two goods are complements if a decrease in the price of one good A) decreases the quantity demanded of the other good. B) decreases the demand for the other good. C) increases the quantity demanded of the other good. D) increases the demand for the other good.1) A) Suppose that y is an inferior good and the price of y falls. Draw a budget constraint and indifference curve map that show the substitution effect and income effect of the price change. B) Now comment on how the substitution effect will differ if the indifference curve is fairly flat. Draw a graph. Why does this happen?
- c) From the following budget line and the utility function, calculate the amount of two commodities that maximizes satisfaction. What is the maximum amount of satisfaction? 2500= 20X + 30Y U = 300 X0.6Y0.71) Explain the following: i. UTILITY ii. UTILITY FUNCTION iii. LAW OF DIMINISHING MARGINAL UTILITY. iv. Given a consumer has a money budget M = 360 and utility function U(X, Y)=X^(3/4)Y^(1/4). If she consumes two goods x and y with prices given by Px=10 and Py=30. Find the QUANTITIES of X and Y that MAXIMIZE her utility.sketch a person’s indifference map and budget line for two goods, X on the horizontal axis and Y on the vertical axis. Mark the optimum consumption point. Now illustrate the following (you might need to draw a separate diagram for each): (a) A rise in the price of good X (a normal good), but no change in the price of good Y. (b) A shift in the person’s tastes from good Y to good X. (c) A fall in the person’s income and a fall in the price of good Y, with the result that the consumption of Y remains constant (but that of X falls).
- 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…Differentiate between normal goods and inferior goodsPlease tell me which of the multiple choices in question 1.6)1.7)1.8) are correct.State only the correct ones please. 1.6) The marginal rate of substitution (MRS) can be defined as: Select one or more: a. The amount of one good that the consumer is willing to trade for one unit of the other. b. The ratio of the amounts of two goods. c. The change in the consumer’s utility when one good is substituted for another. d. The absolute value of the slope of the indifference curve. 1.7) (SEE ATTACHED PICTURE) The diagram shows that: Select one or more: a. If Angela works 24 hours a day she can still survive. b. There is a technically feasible allocation where Angela does not work. c. A new technology that produced more grain would give a larger technically feasible set. d. If Angela needed less grain to survive the technically feasible set would be smaller.
- Weekly income=$60 Burger= $12 each Books= $6 each Points A and B are utility maximizing choices. Price of burgers go from $6 each to $12 each. Part a) Draw the income and substitution effects on the graph. Part b) Are books normal or inferior good? Part c) Are burgers normal or inferior good? Part d) Draw demand curve for burgersDraw your indifference curves for two commodities: (a) where you regard one and two as perfect complements; (b) where you regard one and two as perfect substitutes; (c) where you regard one and two as substitutes; (d) where you regard commodity one as bad and two as good commodity; (e) where you regard commodity one as neuter and two as bad commodity;The substitution effect implies that as the price of a substitute good. the demand for the original good (a) increases; decreases (b) decreases; decreases (c) decreases; increases (d) None of the above.
