Q.1 Consider a typical consumer with a monthly income of Rs. 240. His consumption bundle is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Q.1 Consider a typical consumer with a monthly income of Rs. 240. His consumption bundle is composed of only two commodities: cola (x) and fries (y). The market prices for each unit of these commodities are Rs. 40 and Rs. 30, respectively. The optimal consumption bundle of this consumer is (40, 30). Use this information to solve the following parts: [Total Marks: 35] a) Illustrate the above information using an appropriate consumer theory model. Make sure to provide all labeling to your figure. b) If the per unit price of cola decreases to Rs. 20 and enough money is taken away from the consumer leaving him just as satisfied as he was prior to the price change. What do you expect would happen to the purchase of fries for this consumer? Indicate this change on your diagram from part a) and provide reasonable labeling for this part. c) Now what if you are told that in actuality, no income is taken away from the consumer so his aggregate monthly income stays at Rs. 240 even after the reduction in the price of cola to Rs. 20. Following this, an observation is made where it is revealed that the consumer in fact did not change the consumption of fries in the final equilibrium. Are you able to conclude whether fries are a normal or inferior good for this consumer? Also show the new optimal bundle on the diagram that you've made in part a). Q.1 Consider a typical consumer with a monthly income of Rs. 240. His consumption bundle is composed of only two commodities: cola (x) and fries (y). The market prices for each unit of these commodities are Rs. 40 and Rs. 30, respectively. The optimal consumption bundle of this consumer is (40, 30). Use this information to solve the following parts: [Total Marks: 35] a) Illustrate the above information using an appropriate consumer theory model. Make sure to provide all labeling to your figure. b) If the per unit price of cola decreases to Rs. 20 and enough money is taken away from the consumer leaving him just as satisfied as he was prior to the price change. What do you expect would happen to the purchase of fries for this consumer? Indicate this change on your diagram from part a) and provide reasonable labeling for this part. c) Now what if you are told that in actuality, no income is taken away from the consumer so his aggregate monthly income stays at Rs. 240 even after the reduction in the price of cola to Rs. 20. Following this, an observation is made where it is revealed that the consumer in fact did not change the consumption of fries in the final equilibrium. Are you able to conclude whether fries are a normal or inferior good for this consumer? Also show the new optimal bundle on the diagram that you've made in part a).
Expert Answer:
Answer rating: 100% (QA)
A Illustrate the above information using an appropriate consumer theory model Make sure to provide all labeling to your figure The following graph illustrates the consumer theory model in this scenari... View the full answer
Related Book For
International Business The Challenges of Globalization
ISBN: 978-0133063004
7th edition
Authors: John J. Wild, Kenneth L. Wild
Posted Date:
Students also viewed these economics questions
-
President Obama used part of his commencement address at Virginias Hampton University to criticize the flood of incomplete information or downright incorrect information that flows in the 24-hour...
-
Do you agree or disagree with the statement that documenting results forces people to learn?
-
Do you agree or disagree with the following statement? Television viewers are passive viewers of ads, whereas Internet users take an active role in choosing what to look at-so customers on the...
-
5 Question 42 (2.5 points) Consider a put option that gives the long position the right to sell the underlying asset for $12.34 in 5.67 years. The continuously compounded risk free rate of interest...
-
Set up a moving center line EWMA control chart for the concentration data in Exercise 10.20. Compare it to the residuals control chart in Exercise 10.20, part (c). To find the optimal , fit an ARIMA...
-
Ruhm (1996) considered the effect of beer taxes and a variety of alcohol-control policies on motor vehicle fatality rates. The data is for 48 states (excluding Alaska, Hawaii, and the District of...
-
Dan Cryers checkbook lists the following: Dan Cryers October bank statement shows the following: Requirements 1. Prepare Dan Cryers bank reconciliation on October 31, 2010. How much cash does Dan...
-
CVP, Not for profit Monroe Classical Music Society is a not-for-profit organization that brings guest artists to the communitys greater metropolitan area. The Music Society just bought a small...
-
The School of Business, Mombasa Campus has purchased a new van for sh. 6.8 million. The University of Nairobi transport manager states that the van will be depreciated using straight line method. At...
-
Grain is being added to a silo. At time t=0, the silo is empty. The rate at which grain is being added is modeled by the differentiable function g, where g(t) is measured in cubic feet per minute for...
-
Rose graduated last April from her part-time law degree at WSU. She was born in Malta and retains citizenship, but she has resided in Australia since she was five years old and worked various paid...
-
The Casino de Monte-Carlo is a gambling and entertainment complex located in Monaco that attracts a large international clientele to its table games, slot machines, and special gaming events. It is...
-
While genetically modified wheat is not yet being grown commercially, its production could help meet the growing worldwide demand for wheat. Proponents of genetic modification in wheat argue that it...
-
According to scientists, one of the implications of climate change is rising ocean temperatures, which will reduce the survival rates for spawning salmon species and threaten the economic viability...
-
Spam imposes significant negative externalities on email users (see the Application "Negative Externalities from Spam). If the sender had to pay a small fee for each email, would the extent and...
-
Various countries including Australia, Ireland, and the United States require that firms sell more fuel efficient light bulbs (such as compact fluorescent bulbs) instead of incandescent light bulbs....
-
2. Home Depot (HD) recently paid a annual dividend of $1.50 per share. Using a one period dividend growth model, what is the price of one share of HD stock if the terminal dividend growth rate is 5%?...
-
Audrey purchases a riding lawnmower using a 2-year, no-interest deferred payment plan at Lawn Depot for x dollars. There was a down payment of d dollars and a monthly payment of m dollars. Express...
-
Define economic system. What is the relationship between culture and economics?
-
You are a member of an international ethics commission assembled by the World Trade Organization (WTO). Your team has been asked to assess the global tactics of Microsoft in recent years. A primary...
-
What are the three different types of international staffing policies that companies can implement?
-
You have prepared tax returns for the Hicks & Hocks Corporation for several years. Hicks called you and requested 50 additional copies of the return this year. You have never prepared audited or...
-
Assume that you prepared Moore Corporation's federal income tax return. Shortly thereafter Moore came to your office and requested that you prepare financial statements for the corporation solely...
-
The following questions relate to specialized reporting circumstances. Select the best response. a. When reporting on financial statements prepared on a comprehensive basis of accounting other than...
Study smarter with the SolutionInn App