Problem based on utility function
Course:- Macroeconomics
Reference No.:- EM1323

Assignment Help
Assignment Help >> Macroeconomics

Question: In Vancouver the Salvation Army encourages people to make food voucher donations to panhandlers instead of simply giving them cash. You can buy a food voucher for $5 and give it to a panhandler who can use it to purchase food. The Salvation Army says it's a way to ensure that a gift actually goes to food, rather than alcohol or drugs. Suppose a panhandler (PH) consumes two goods: food (F) and drugs (D). The PH has a utility function u = F0D1. This can also be written as u= D. Answer and explain the following using a diagram which is completely labeled.

(a) If drugs and food each cost $1 per unit, and the PH has $20 is cash, how much D and F will he consume.

(b) If instead the PH has $10 in cash and $10 in food vouchers, how much D and F will he consume?

(c) Is the PH better off with $20 in cash, or with $10 in cash and $10 in food vouchers.


Put your comment

Ask Question & Get Answers from Experts
Browse some more (Macroeconomics) Materials
Suppose that firm sells its product in a perfectly competitive market. The company fixed costs are equal to $100 and its variable cost schedule is as follows;
Studies indicate that the price elasticity of demand for cigarettes is about -0.4.If a pack of cigarettes currently costs $2.0 and the government wants to reduce smoking by 20
Determine the conditions of perfect competition. Name each and describe with an example how the real markets can violate one of more of these conditions.
Scientists reveal that consumption of oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees more productive. Illus
Nowadays, like magic, there are social network-based recommender systems, proximity location-based application and a handful of other models and features. Seeking a recommen
Two oligopoly company are in the process of estimating their marketing strategies. Firm 1 can generate estimated profits of $10 million from strategy A
Assume that the real risk-free rate, r*, is 4% and that inflation is expected to be 8% in Year 1, 6% in Year 2, and 4% thereafter. Assume also that all Treasury securities are
Suppose in the banking system as a whole, demand deposits are equal to $80,000,000 and reserves are equal to $17,000,000 with a legal reserve ratio of 10%. If the Fed double