Describe utility function, Macroeconomics

Assignment Help:

Suppose that Mr. Chauncey Gardener consumes two goods, X1 and X2 .His preferences can be described by the following utility function:

U = X10.5X20.5

He faces the following prices in the market: P1 = $5.00 and P2 = $10.00. His income is $1,000. Assume that he spends all his income.

A.   How much will he buy of commodities 1 and 2? Explain your answer.

B.   Suppose that the price of commodity 2 rises by $2.50 (from $10.00 to $12.50); what will be the change in the quantities consumed of goods 1 and 2? Explain.

C.  In the previous question (part B), take the change in the quantity consumed of commodity 2 and decompose it into an amount associated with the substitution effect and another one connected to the income effect (use the Slutsky decomposition discussed in class).

In answering these questions, remember to provide numerical answers and to explain where your answers come from.

 


Related Discussions:- Describe utility function

explain how to solve the evacuation-route problem, You are the mayor of a ...

You are the mayor of a beautiful city by the ocean, and your city is connected to the mainland by a set of k bridges. Your city manager tells you that it is necessary to come up wi

No plans to purchase hot dogs in january, Currently you purchase 6 packages...

Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase hot dogs i

Multiplier, multiplier static and dynamic

multiplier static and dynamic

Money, what effect would a rise in the velocity of money have on output, em...

what effect would a rise in the velocity of money have on output, employment and price level?

Healthcare cost, define the economic principle of opportunity cost explain ...

define the economic principle of opportunity cost explain whether spending 17.9% of gdp is too much or too little to spend on healthcare

Monetarism - friedman''s demand for money function, Monetarism This sc...

Monetarism This school argues that disturbances within the monetary sector are the principal causes of instability in the economy. According to monetarists, the money supply i

Trading, America can produce 100 shirts or 20 computers and China can produ...

America can produce 100 shirts or 20 computers and China can produce 100 shirts or 10 computers. With trade, who exports shirts? Which country benefits from the trade?

Statics and dynamics, Statics and Dynamics   Economic models deal with s...

Statics and Dynamics   Economic models deal with stock and flow variables. These variables can be in one of the two states - equilibrium or disequilibrium - at a particular poin

Reimbursement affect the number of admissions, How will each of the followi...

How will each of the following bases for hospital reimbursement affect the number of admissions, the average length of stay, the volume of services per day, and the unit cost of se

Price-elasticity of demand coefficient of a firm''s product, a) Use the arc...

a) Use the arc-approximation formula to calculate the price-elasticity of demand coefficient of a firm's product demand between the (quantity, price) points of (100, $20) and (300,

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd