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What are the special properties of the Cobb-Douglas production function, and how might the function be used to calculate the sources of growth?
• What is her willingness to pay?
• If she had bought the Iphone on sale for $180, what would her consumer surplus have been?
• If the price of an Iphone were $500, what would her consumer surplus have been?
3. Consider a consumer who wants to consume only two commodities and has an income of $100. Assume the price of good 1 is $10 per unit and the price of good 2 is $20 per unit. Now, inflation causes the price of good 1 to increase to $20 per unit, while the price of good 2 increases to $25 per unit. On the other hand, the consumer also gets a raise of $100 (so her new income is $200). Is she better off or worse off?
2. Suppose, Vacuum Cleaners have an elastic demand and Mobile Phones have an inelastic demand. Now suppose that technological advancement triples the supply of both products.
a. Draw two separate diagrams to show what happens in each of the market to the equilibrium price and quantity? (3 marks)
b. Which product experiences a larger change in price? (1 mark)
c. Which product experiences a larger change in quantity? (1 mark)
d. What happens to total consumer spending on each product? [1 mark)
What type of goods are gas and electricity if the cross elasticity of demand between these two goods are positive
3. Consider a consumer who wants to consume only two commodities and has an income of $100. Assume the price of good 1 is $10 per unit and the price of good 2 is $20 per unit. Now, inflation causes the price of good 1 to increase to $20 per unit, while the price of good 2 increases to $25 per unit. On the other hand, the consumer also gets a raise of $100 (so her new income is $200). Is she better off or worse off?
2. Saron spends 150 birr per month on coffee and cake at the cafeteria. A cup of coffee costs 15 birr and a cake costs 10 birr.
a) Write the equation for Saron’s cafeteria budget constraint and draw it in a diagram.
b) Assume that Saron never drinks coffee without eating one cake, and never eats cakes without drinking coffee. How much of each will she consume? Draw some of her indifference curves.
c) What do we call goods that are always consumed in the same proportion?
Suppose that the utility function for two commodities is:
U(q1, q2) = q1α q2(1-α)
Let the prices of the two commodities be p1 and p2 and let the consumer’s income be M.
(1) Check the properties of marginal utilities. In particular, check whether it satisfies diminishing marginal utilities.
(2) Assuming all income is spent on these two commodities, derive the demand curves for the two commodities.
(3) What happens if U(q1, q2) = q1α q2β?
Suppose the prices of the commodities A and B are p1 and p2 respectively. The consumer purchases X1 unit of A and X2 units of B. Suppose, the consumer has an income denoted by M and the consumer would spend the entire amount of M on these two commodities. How are p1, p2, X1, X2 and M related?
#339914 on Dec 2023