1/2 1/2 Frank's preferences over q₁ and q₂ are given by U (91, 92) = 91 92 and he has an income of Y = 128. The price initial prices are p₁ = 4 and p2 = 16. Suppose that the price of g₁ increases to 13. What are the compensating variation (CV) and the equivalent variation (EV) in absolute value? |CV = 120.56 and |EV = 48 |CV = 102.76 and |EV = 57 |CV=88.76 and |EV = 81 |CV = 19.33 and |EV = 24 |CV = 134.67 and |EV = 123 000
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- Eren’s two main hobbies are taking vacations overseas (V) and eating expensivemeals (M). His utility function is given as: U(V,M) = V2MLast year, the average price of taking a vacation overseas was US$200 and the averageprice of an expensive meal is $50. However, due to supply problems in Onions, theaverage price of an expensive meal rose to $75. The average price of a vacation did notchange. His income, which is $1500, did not change. Suppose that the Department of Welfare wants to know how much should begiven to Eren to offset his change un utility due to the price increase of an expensivemeal. Calculate the compensative variation (CV).Eren’s two main hobbies are taking vacations overseas (V) and eating expensivemeals (M). His utility function is given as: U(V,M) = V2MLast year, the average price of taking a vacation overseas was US$200 and the averageprice of an expensive meal is $50. However, due to supply problems in Onions, theaverage price of an expensive meal rose to $75. The average price of a vacation did notchange. His income, which is $1500, did not change. Calculate the change in consumer surplus from consuming the expensivemeals considering the price change (Hint: you need to compare his optimalconsumption bundle before and after the price change to get the change in CS).Eren’s two main hobbies are taking vacations overseas (V) and eating expensivemeals (M). His utility function is given as: U(V,M) = V2MLast year, the average price of taking a vacation overseas was US$200 and the averageprice of an expensive meal is $50. However, due to supply problems in Onions, theaverage price of an expensive meal rose to $75. The average price of a vacation did notchange. His income, which is $1500, did not change. Calculate for the equivalent variation (EV) for the price change.
- 7. Find the utility for the following time-discounted situations ( U = 100 + E,(100- 50)0.95' a.12) A consumer's preferences are given by U(X,Y)= Xo6y04. The price of X is 4, and the price of Y is 6. The consumer has an income of $2200. a) What is the utility maximizing choice of X and Y? b) How would the utility maximizing choice change if price of X rose to 8? c) Given the answers to the previous parts plot a linear demand function for X.Greg has the following utility function: u=2057 20.43. He has an income of $96.00, and he faces these prices: (P1, P2) (9.00, 9.00). Suppose that the price of an increases by $1.00. Calculate the equivalent variation for this price change. =
- Question 2 David spends his budget on chocolate and chip. His utility function is given by ?(?1,?2)= 2?1?2, where ?1 is the number of chocolates he consumers per week, and ?2 is the number of chips he buys per week. A chocolate costs 10 SEK, and a chip costs 20 SEK. David’s weekly budge for consuming on these two goods is 120 SEK. (1) What is David’s budge line? Draw the budget line on a graph with chocolate amounts on the horizontal axis and chip amounts on the vertical axis. Write explicitly at which points budget line crosses the axis. (2) What is David’s marginal utilities for the two goods, respectively? What is his marginal rate of substitution between the two goods? (3) What is David’s optimal choice? Calculate the numerical answer for the optimal bundle. Also draw an indifference curve for David on the same graph as question(1) and show the optimal bundle.Upon graduating from UT this May, you take on a management position working at UtMax theater. You will consider the utility of seeing performance over 1 month, and suppose that at a regular price of $$$ per ticket (my assigned ticket price is 145), customers will see no performance, however with the price reduced by $5, customers will see one performance per month and when reduced by $10, customers will see two performances. As long as the number performances, x, is small, your demand function for performance can be modeled by p=D(x). Write down your demand function.Exercise Suppose the utility function of a person consuming two commodities X and Ywith income Birr 600 is given by U = 2 X 06Y 04 If the per unit price of X is Birr 20 and per unit price of Y is Birr 40 a) What is the utility maximizing level of consumption of X & Y ? b) Find the MRSyy at the optimum ?
- Questions 1. Will's utility from vacations (91) and meals (92) is given by the function U(V, M) = 91 x 92. Last year, the price of vacations was $200 and the price of meals was $50. This year, the price of meals rose to $75, while the price of vacations remained the same. Both years, Will had an income of $1500. (a) What is the compensating variation for the price change in meals? (b) What is the equivalent variation for the price change in meals?QUESTION 5 A utility maximising individual has utility function u(x, y) = x'/²y³/4, income m = 100 and faces prices px = 4 and py = 1. Suppose the price of x decreases to px = 1. Which of the following statements is correct? (i) The own-price income effect is 15.0 (1 d.p.). (ii) The own-price substitution effect is 11.2 (1 d.p.). (iii) The cross-price income effect is 27.2 (1 d.p.). (iv)All of the above are correct. (v) None of the above are correct. %3DConsider a consumer who is choosing between cake (c) and ice-cream (i). Their utility function is given by u(xc, xi) = xcx? . Initially their income is m = 10, and prices are given by p. = 2 and p = 4. а. Solve for the consumer's demand functions for c and i, and calculate their demand at the prices given above. Right before a bank holiday, the price of cake increases to $4. Calculate the consumer's demand at these new prices. b. Calculate the income and substitution effect of this price change on demand for cake. с. With the aid of a diagram, explain why the weak axiom of revealed preferences implies that the substitution effect for x, must be negative. d.