ECON 2GG3 Study Guide - Midterm Guide: Gatorade, 3-Phosphoglyceric Acid, Pareto Efficiency

99 views4 pages

blueyak362

22 Nov 2012

School

Department

Course

Professor

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Initially, the price of good 1 is per unit, the price of good 2 is per unit, and the consumer"s income is . First get the ordinary demands and the compensated demand for good 2. The income effect is: rob consumes only two goods vodka and gatorade. He combines these into a toxic swill called vadorade that is three parts gatorade and one part vodka resulting in his utility function gatorade costs him , and his income is . Then one year, due to a poor gator harvest, the price of gatorade jumps to per litre. What is the compensating variation to rob of this price change? x x. Initially, a litre of vodka costs rob , a litre of. For questions 4 and 5 use the following: Cher and dionne live in their own little world where there are two goods: clothes (c) and jeeps (j).

Related Questions

I am only interested in part c,

1. James has a utility function given by U=X^0.5+Y^0.5 , where X is the amount of product 1 consumed per period and Y is the amount of product 2 consumed per period.

a) Derive expressions for Jamesâ price elasticity of demand for good 1, Jamesâ income elasticity of demand for good 1 and Jamesâ cross price elasticity of demand for good 1 with respect to the price of good 2? Calculate the values of these elasticities at and I=$100. Explain the meaning of these elasticity values in words. Show that the sum of these three elasticities must be zero. Comment. Derive Jamesâ indirect utility function and explain its meaning.Px=Py=1

b) What is the minimum income necessary for James to achieve 100 utils when and ? Illustrate your answer with a diagram. Derive Jamesâ compensated demand functions for goods 1 and 2. Suppose now that I=$100, .

c) Use your answers to part (a) to find the optimal values of and . Calculate Jamesâ gain in compensating consumer surplus if declines to $.5. Use Jamesâ compensated demand curve for good 1 to illustrate this. Illustrate the âincomeâ and âsubstitutionâ effects of this price reduction using Jamesâ indifference curve map and his budget lines.

periwinklebear649

1. Economists use indifference curves to characterize the preferences of a rational consumer. There are some plausible assumptions that lead to a set of âwell-behavedâ (i.e., downward-sloping and strictly convex) indifference curves. Which one of the following is NOT among the assumptions?

a. All goods must be economic âgoods.â

b. Preferences are complete.

c. Preferences are transitive.

d. All goods are normal goods

2. Given the prices of good X and Y, the (negative of the) slope of the budget constraint (i.e., - PX/PY) measures

a. the amount of good Y the consumer is willing to forgo in order to consume one more unit of good X.

b. the ratio of the consumer's income to the price of the X good.

c. the quantity of the Y good that must be forgone in order to purchase one more unit of the X good.

d. the quantity of the X good that must be forgone in order to purchase one more unit of the Y good.

3. Which of the following statements is incorrect for an inferior good?

a. An inferior good may have an upward-sloping demand curve.

b. The income elasticity of demand for an inferior good is negative.

c. An inferior good is an economic âbad.â

d. All of the above.

1. Assume that beer is an inferior good for Wei. If the price of beer goes up, then the total effect results in Wei buying _______ beer and the substitution effect results in Wei buying ______ beer.

	a.	more, more
	b.	more, less
	c.	less, more
	d.	less, less
	e.	not enough information to determine

2. A consumer has preferences that are complete, transitive and satisfy the "more is better" property. Which of the following statements are necessarily true?

	a.	Indifference curves are negatively sloped.
	b.	Indifference curves do not cross.
	c.	Indifference curves exhibit diminishing marginal rates of substitution.
	d.	Both a) and b) are true.
	e.	a), b), and c) are true.

3. Suppose an individual has preferences over two goods - good X and good Y. In response to changes in the price of good X, the individual has a positively sloped price consumption curve, where good X is drawn on the horizontal axis. Which of the following statements is true?

	a.	Good Y is a normal good.
	b.	Good Y is a Giffen good.
	c.	Good Y is a complement for good X.
	d.	Good Y is an inferior good.
	e.	Good Y is a substitute for good X.

ECON 2GG3 Study Guide - Midterm Guide: Gatorade, 3-Phosphoglyceric Acid, Pareto Efficiency

Document Summary

Get access

Related Documents

ECON 2GG3 Lecture Notes - Budget Constraint, Indifference Curve, Composite Good

ECON 2GG3 Lecture Notes - Budget Constraint, Normal Good

ECON 2GG3 Lecture Notes - Normal Good

Related Questions