ECON 3030 Chapter Notes - Chapter 2-3: Budget Constraint, Composite Good, Substitute Good

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periwinklecrab682

30 Dec 2017

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Econ 3030 - chapter 02 - budget constraint. The budget constraint of a consumer can be written as p1x1 + p2x2 m where p1 = price of good 1 p2 = price of good 2 m = consumer"s income. A budget set is the set of a consumer"s a ordable bundles given the price of the goods and their income. A composite good is a good that consists of everything else that the consumer might want apart from 1 good; usually measured in money left over. The budget line is the set of bundles that equal a consumer"s income. The numeraire price is the price relative to which we measure the other price and income. If a consumer thinks the x y but x ~\~ y, then x > y. Complete: any two bundles can be compared, that is strictly preferred to is at least as good as equal or x ~ y.

Related Questions

Suppose a consumer has an income of $30 that is spent on two goods: X and Y. The price of good X is $3.00 and the price of good Y is $1.00. Which of the following bundles of X and Y lie on the individual's budget constraint?

1. 8X and 6Y

2. 6X and 8Y

3. 8X and 10Y

4. 12X and 4Y

5. 16X and 6Y

burgundygoose922

Suppose that there are two goods (X and Y). The price of X is $2 per unitu, and the price of Y is $1 per unit. There are two consumers ( A and B). The utility functions for the consumers are: for consumer A: U (X,Y)= X^.5Y^.5 and for consumer B: U(X,Y)=X^.8Y^.2

Consumer A has an income of $100, and Consumer B has an income of $300.

1. Derive the marginal utlities of goods X and Y for consumer A

2. Derive the marginal utilities of goods X and Y for consumer B

3. Set consumer A's MRS equal to the price ratio. Then use the budget constraint to solve for her optimal bundle

4. Set consumer B's MRS equal to the price ratio. Then use the budget contraint to solve for his optimal consumption bundle.

5. Calculate the MRS for each consumer at their optimal consumption bundles.

6. Suppose that there is another conusmer (let's call her C). You don't know anything about her utility function or her income. All you know is that she consumes both goods. What do you know about C's MRS at her optimal consumption bundle? Why?

crimsonbat715

A consumer is in equilibrium at point A in the diagram below. The price of good X is $5.

A. What is the price of good Y?
$____________

B. What is the consumer's income?
$____________

C. At point A, how many units of good X does the consumer purchase?
_________ units

D. Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium?

a. The price of good X decreased to $2.50.

b. The price of good Y increased to $10.

c. The price of good Y decreased to $2.50.

d. The price of good X increased to $10.

E. Is the consumer better off or worse off as a result of the price change?

redfox51

ECON 3030 Chapter Notes - Chapter 2-3: Budget Constraint, Composite Good, Substitute Good

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