Question
1. Crystal's utility function is U = FC, where U measures Crystal 's utility, F is Crystal's food consumption, measured in kilograms per day, and
1. Crystal's utility function is U = FC, where U measures Crystal 's utility, F is Crystal's food consumption, measured in kilograms per day, and C stands for all other consumption, measured in numbers of dollars. The price of a unit of C is $1. A) If Crystal's income is $100 per day and the average price of a kilogram of food is $1, how many kilograms of food will she consume? How many dollars will Crystal spend on other consumption? B) If Crystal's income rises to $120 per day and prices remain unchanged, how many kilograms of food will she consume, and how many dollars will she spend on other consumption? C) If Crystal's income remains at $120 per day but the price of food rises to $4 per kilogram, how many kilograms of food will Crystal consume, and how many dollars will she spend on other consumption? 2. Tiffany earns $1800 per month and receives food stamps from the government. Her utility function is U = G3F 2 , where U measures Tiffany's utility, G measures Tiffany's consumption of goods and services other than food, measured in numbers of dollars, and F measures Tiffany's food consumption, measured in kilograms. The price of G is $1. The price of food is $2. A) If Tiffany were to receive $200 worth of food stamps per month, what would Tiffany's budget line be? (Assume that food stamps can be used only to buy food and are not transferable to another person.) How much food would Tiffany consume per month, and how much would she consume of other goods and services? B) If, instead of receiving free food stamps, Tiffany were charged $1 for a food stamp she could redeem for $2 worth of food. And assume Tiffany could buy as many food stamps as she wished. What would Tiffany's budget line be? How much food would she consume, and how much would she consume of other goods and services? C) If Tiffany received no food stamps, but, instead received $200 in cash to supplement her $1800 monthly income, what would her budget line be? How much food would she consume, and how much would she consume of other goods and services?
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