Preferences are homothetic and convex

Assignment Help Business Economics

Reference no: EM131236635

Kevin’s utility function is U(x, y) = x a + y b , where a ≥ 0 and b ≥ 0. What additional restrictions on the values of the parameters a and b are imposed by each of the following assumptions? (note: some of the following notions we mentioned in passing during lectures, e.g. homotheticity, normal goods, but the textbook provides the necessary additional information) (a) Kevin’s preferences are homothetic. (b) Kevin’s preferences are homothetic and convex. (c) Goods x and y are perfect substitutes. (d) Kevin’s preferences are quasi-linear and convex, and x is a normal g

Reference no: EM131236635

Questions Cloud

Significantly affect our estimate of risk : Examine the factors that can significantly affect our estimate of risk. Outline the role the PM can play to prepare the grounds for a better estimate of risks.

What is the equilibrium price in the market without marker : A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. What is the equi..

How it is different from the heavyweight methods : Project valuation models: Critically evaluate the contribution Agile approach can make to project modelling. How it is different from the “heavyweight” methods.

Define internal rate of return : Define Internal Rate of Return (IRR). What is the assumed Net Present Value in calculating IRR? Why is it not appropriate to compare today’s outflow of cash (cost of the project) directly to future cash inflows? If the Weighted Cost of Capital (WACC)..

Preferences are homothetic and convex : Kevin’s utility function is U(x, y) = x a + y b , where a ≥ 0 and b ≥ 0. What additional restrictions on the values of the parameters a and b are imposed by each of the following assumptions? Kevin’s preferences are homothetic. Kevin’s preferences ar..

Describing precisely your procedure : Alice’s preferences are represented by the utility function U(x, y) = x/ y if y > 0 and U(x, y) = 0 if y = 0. Draw a couple of her indifference curves, describing precisely your procedure, showing whether or not she • prefers more of each good to les..

The market outcome under bertrand competition : There are two firms in an in an industry. Let q1 and q2 be the two firms in an industry and Q= q1 + q2 be the total output. The inverse demand in the industry if P (Q)= 45 – Q. The cost function for each firm is C(qi) = 9qi. The market outcome under ..

Determine equilibrium e acts of shock on aggregate output : Suppose that the government decides to increase G. Using a diagram, determine the equilibrium e acts of this shock on aggregate output, consumption, employment, and the real wage. Show that increasing G can potentially increase welfare. Compare your ..

What happens to the equilibrium price and quantity of salsa : Many consumers like to eat their salsa with tortilla chips. In economics, these products are often reffered to as complements. What happens to the equilibrium price and quantity of salsa if the price of tortilla chips increases? Why?

User Account

All Pages