Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

John's preferences for good X and good Y are described by the following utility function:U(X, Y) = XY^2where X and Y are the respective amounts

image text in transcribed

John's preferences for good X and good Y are described by the following utility function:U(X, Y) = XY^2where X and Y are the respective amounts of good X and good Y John consumes.The following are the formulas for John's marginal utilities:MUx = Y^2andMUy = 2XY

image text in transcribed
1. Briefly explain what is meant by the statement that "preferences are transitive". Use the bundles A = (X,Y) = (1,1), B = (X,Y) = (2,2), and C= (X,Y) = (3,3) to illustrate that for these bundles John's preferences are transitive while clearly explaining your reasoning. 2. Plot John's indifference curve that goes through the point (4, 6). Explain your reasoning. Briefly explain whether John's preferences exhibit a diminishing marginal rate of substitution. 3. Suppose that John's income is I = 30. Suppose also that the price of good X is Py = 1 and the price of good Y is Py = 2

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Advanced Macroeconomic Theory

Authors: Ola Olsson ]

1st Edition

9780415685085

More Books

Students also viewed these Economics questions

Question

understand the restrictions of top-down job redesign approaches;

Answered: 1 week ago

Question

Always show respect for the other person or persons.

Answered: 1 week ago

Question

Self-awareness is linked to the businesss results.

Answered: 1 week ago

Question

1. Too reflect on self-management

Answered: 1 week ago