Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

not my work old pass question need solved [30 Minutes.] Anderson Cooper consumes ties (t) and hair gel (g) so that he can look sharp

not my work old pass question need solved

image text in transcribed
[30 Minutes.] Anderson Cooper consumes ties (t) and hair gel (g) so that he can look sharp for his nightly TV show. Anderson's preferences for ties and gel are described by the utility function u = g't . The price of ties is pt = 40 and the price of hair gel is pg = 10. Anderson's weekly income to spend on ties and hair gel is m = 200. In the questions below, treat hair gel (g) as the good that goes on the horizontal axis in an indifference curve diagram. Please write your answers to all questions below on paper (or in another file), take pictures of or scan the pages with your answers, and then upload all the files with your answers below. Clearly indicate where we can find your answer to each part in the files you upload. Your answers to all parts should not exceed 2 pages (although you will be able to upload more if needed). Part A. Solve for Anderson's optimal bundle of hair gel and ties (g*, t*). Plot the optimal bundle in an indifference curve diagram and label it as bundle 'A'. Be sure to label all intercepts for the budget line. (8 marks) Part B. The price of ties falls to p, = 20. Solve for Anderson's new optimal bundle and plot this as bundle 'C' in your diagram. (4 marks) Part C. Thrilled with this lower price, Anderson decides to give away some of his weekly income to charity. He wants to give away an amount such that the new income he has remaining makes his original bundle of hair gel and ties (from Part A) just affordable at the new prices p, = 20 and p. = 10. How much money does Anderson need to give to charity? At his new weekly income (after he has donated money away) and the new prices, what is his optimal bundle (g*, t* )? Draw this bundle as bundle 'B' and the associated budget line in your diagram. (10 marks) Part D. Are ties a Giffen good? Explain

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

Economics of Money, Banking and Financial Markets

Authors: Frederic S. Mishkin

9th Edition

978-0321607751, 9780321599797, 321607759, 0321599799, 978-0321598905

More Books

Students also viewed these Economics questions