Search & Filtering
Do each of a-d, both geometrically (you need not be precise) and using calculus. There are only two goods; x is the quantity of one good and y of the other. Your income is I and u(x,y) = xy + x + y.
(a) Px = $2; Py = $1; I = $15. Suppose Py rises to $2. By how much must I increase in order that you be as well off as before?
(b) In the case described in part (a), assuming that I does not change, what quantities of each good are consumed before and after the price change? How much of each change is a substitution effect? How much is an income effect?
(c) Px = $2; I =$15. Graph the amount of Y you consume as a function of Py , for values of Py ranging from $0 to $10 (your ordinary demand curve for Y).
(d) With both prices equal to $1, show how consumption of each good varies as I changes from $0 to $100.
Neville's passion is fine wine. When the prices of all other goods are fixed at current levels, Neville's demand function for high-quality claret is Q = .02M – 2P, where M is his income, P is the price of claret (in British pounds), and Q is the number of bottles of claret that he demands. Neville's income is 7500 pounds, and the price of a bottle of suitable claret is 30 pounds.
(a) How many bottles of claret will Neville buy?
(b) If the price of claret rose to 40 pounds, how much income would Neville
have to have in order to be exactly able to afford the amount of claret and the amount of other goods that he bought before the price change?
(c) At the income level you mentioned in part (b) and the higher price of claret of 40 pounds, how many bottles would Neville buy?
(d) At the original income of 7500 pounds and a price of 40, how much claret would Neville demand?
(e) Decompose the total price effect into the substitution and income effect
A person’s utility function is of the form U(x,y) = 5xy. The prices of good x and y are Px = $4 and Py = $2, respectively. The person’s income is $1200.
(a) Show that these preferences are homothetic?
(b) What quantities of x and y should the consumer purchase to maximize his
utility?
(c) Determine the person’s income offer curve (IOC). Draw it.
(d) Explain whether each of the two goods is normal or inferior.
(e) Derive the Engel curve for x. Draw it.
A monopolist has the following information, where Q is the quantity of goods and
P is the price:
Market Demand: P = 300 -Q
Marginal Cost: MC = 2Q
Total Cost: TC = 2 +Q~2
No price discrimination: calculate Q", P*, CS, PS, DWL
Perfect price discrimination: calculate Q", P*, CS, PS, DWL
Second-degree price discrimination: calculate $275, $250, $225, $200 for
each first, second, third, forth of 25 units block.
Assume the economy of a country is currently operating at short-run equilibrium and producing $500 million in real GDP at a price level of $50. However, the full employment rate of output in Johnsrudia is $300 million. Draw a correctly labeled graph of the AD-AS model that reflects this information. After that tell what happen?
“Substitution effect of any commodity is positive for a given a price change”. Explain the validity of this statement using appropriate illustrations
You are an analyst employed by an airplane manufacturer that last year sold 40,000 ATR-72
aircrafts at $100,000 each. Your market research indicates that:
I. the price elasticity of demand for your aircrafts in −0.5. (or +0.5 in absolute value);
II. the income elasticity of demand for your aircrafts is +3.7; and
III. the cross price elasticity for your aircrafts with respect to the price of a comparable jet
manufactured by a competitor is +1.6.
A. Suppose that you expect a ceteris paribus decrease in average incomes of 10% this
year compared to last year. How many aircrafts do you estimate that your company will
sell this year? How will it impact total revenues? 6 mark
The price of compact disc players fell over the past decade because a combination of improving
technology, rising incomes, and falling prices of compact discs caused the
Assuming the supply function is given as: Qs=+5P Determine the quantity
supplied of fish in kilos at a given prices
Price of Fish (per Kilo) Supply (in kilos)
P 20
40
60
80
100
Illustration:
Given:
Required:
Solution:
Assuming the supply function is given as: Qs=+5P Determine the quantity
supplied of fish in kilos at a given prices
Price of Fish (per Kilo) Supply (in kilos)
P 20
40
60
80
100
Illustration:
Given:
Required:
Solution:
