Determine elasticity of demand , Macroeconomics

Consider the consumption decisions of R.B. Turbo, a new student at T University. Ms. Turbo has only available $1,000 in monthly income to spend on food and housing. In terms of food, Ms. Turbo, a vegetarian, has found there is a nice restaurant called Veggies that offers vegetarian meals. She wants to buy food from this restaurant and is considering their monthly dinner plan, which costs $125.00 per meal served every day in the month (she can consume more than one meal a day). In addition, Ms. Turbo is looking for housing. She has found a cheap apartment building in a polluted area of New Jersey where the monthly rental of a one-bedroom apartment is $250.00, a 2-bedroom is $500,00, a 3-bedroom is $750.00, a 4-bedroom is $1,000 and so on. Assume That Turbo has preferences that can be described by the following utility function:

U = X10.5X20.5

Where X1 is the quantity consumed of food per month (number of meals served every day in a month), and X2 is the number of bedrooms in her apartment.

A.    Calculate the number of bedrooms that Ms. Turbo's apartment will have (give a numerical answer and explain how it is obtained, including any derivations).

B.     Compute the number of meals that Ms. Turbo will consume every day at Veggies (again, provide a numerical answer and specify how it is obtained).

C.     Suppose that Ms. Turbo suddenly receives a $500 increase in monthly income. Would there be any changes in her consumption of housing and food? (assume that she has the ability to upgrade to better apartments (with more bedrooms) and to change her monthly meal plan if she wants, so as to increase or decrease the number of  meals she eats a day).

D.    What is Ms. Turbo's income elasticity of demand for housing?

E.     Suppose that Ms. Turbo has an income of $1,000 (as in parts A and B) but that, all of a sudden, Veggies decides to increase the price of its monthly program of meals from $125 per meal to $150. How many dishes will Ms. Turbo consume each day under the new program? Will she keep the same type of apartment (the same number of bedrooms)?

F.      What is Turbo's price elasticity of demand?

Posted Date: 3/18/2013 5:34:22 AM | Location : United States







Related Discussions:- Determine elasticity of demand , Assignment Help, Ask Question on Determine elasticity of demand , Get Answer, Expert's Help, Determine elasticity of demand Discussions

Write discussion on Determine elasticity of demand
Your posts are moderated
Related Questions
It's been three weeks since you started working for BioMed and there's still no trace of Selwyn. That means you're still BioMed's resident economic expert. Harry the CEO was ple

You can work on this assignment individually or in a group of up to 4 people.  If you choose to work as a group, your group should hand in one assignment and you will all receive t

Marginal cost curves generally slope: a) downward because of decreasing opportunity cost b) upward because of decreasing opportunity cost c) downward because of increasing opp

Explain the concept of diminishing returns to labor.

Q. Explain about Labor Market  in AS-AD model? In AS-AD model, economy will always be on the response curve - the thick line in chart below.  Figure: The labor in the

The following Table summarizes the profits of two firms as a function of their capacity investments levels (you can also interpret these levels as the quantities they produce):

factors that causes the shifts in balance of payments

How do the five competitive forces in Porter's model affect the profitability of the overall industry? For example, in what way might weak forces increase industry profits, and in

In 2010, Wonderlanders consumed 15 million liters of rum at an average price of $5 per liter. The Wonderland department of commerce has estimated that the price elasticity of the d

Factors Responsible for changes in Aggregate Supply We know that changes in input costs such as wages, oil and other input prices will cause changes in aggregate supply. Most