ECO206Y1 Lecture : Topic 3 - Budget Constraints

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jadesalmon88

28 Sep 2011

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Topic 3 - budget constraints (lecture 2 sept 21st: goods: x1, x2, price: p1, p2, e: total expenditure/budget the individual has; Assume that all of e is spent, e = p1x1 + p2x2 . = maximum units of x2 that can be consumed; = oc = units of x2 that have to be reduced to consume one more unit of x1; - change in variables: x2 x2 x2 x1 x1 x1. Liner budget constraint = assumption that prices are fixed; In the real world, there might be non-linearity of prices e. g. price of electricity depends on usage x1a,2p1; x2,p2 a x1. Inter- temporal budget constraint x1p1 + x2p2 = y1+y2 x1 = Suppose individual has initial asset = ao: a1 (at the end of period 1) = ao (1+r1) + y1 p1x1, a2 (at the end of period 2) = a1 (1+r2) + y2 p2x2. Suppose assume a2 = 0 no bequest case (spend everything you have)

Related Questions

Assume that an individual consumes two goods, X and Y. The total utility (assumed measurable) of each good is independent of the consumption rate of other goods.
The price of X and Y are respectively $40 and $60. Use the following table of total utilities to answer the following questions.

Good	Total utility X	Total utility Y
1	20	45
2	38	78
3	54	108
4	68	135
5	80	159
6	90	180

a. The marginal utility of the fourth unit of Y is__________.
b. The marginal utility of the fifth unit of X is___________.
c. The marginal utility per dollar spent on the third unit of X is__________.
d. The marginal utility per dollar spent on the second unit of Y is__________.
e. If the consumer has $420 to spend, ______ unit of X and _______units of Y maximize utility subject to the budget constraint. Explain.
f. If the consumer has $220 to spend, _______ units of X and_______ units of Y maximize utility subject to the budget constraint. Explain.
g. If the consumer wanted 4 units of X and 6 units of Y, what would have to be his/her budget constraint in order to maximize his/her utility? Explain.

sangrializard991

Assume that an individual consumes two goods, X and Y. The totalutility (assumed measurable) of each good is independent of therate of consumption of other good.
The price of X and Y are respectively $40 and $60. Use thefollowing table of total utilities to answer the followingquestions.

Good 1, 2 ,3 ,4, 5, 6
Total Utility of X 20, 38, 54, 68, 80, 90
Total Utility of Y 45, 78, 108, 135, 139, 180

a. The marginal utility of the fourth unit of Y is__________.
b. The marginal utility of the fifth unit of X is___________.
c. The marginal utility per dollar spent on the third unit of X is__________.
d. The marginal utility per dollar spent on the second unit of Y is__________.
e. If the consumer has $420 to spend, ______ unit of X and _______units of Y maximize utility subject to the budget constraint.Explain.
f. If the consumer has $220 to spend, _______ units of X and_______ units of Y maximize utility subject to the budgetconstraint. Explain.
g. If the consumer wanted 4 units of X and 6 units of Y what wouldhave to be his/her budget constraint in order to maximize his/herutility? Explain.

ambercricket754

At the consumer's optimum:

	a.	the indifference curve will intersect the budget constraint at the midpoint of the budget constraint.
	b.	it is still possible for the consumer to increase his consumption of both goods.
	c.	the budget constraint will have a slope of MU_x/P_x.
	d.	the slope of the indifference curve is equal to the slope of the budget constraint.

aquamarineyak764

ECO206Y1 Lecture : Topic 3 - Budget Constraints

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