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- 2nd attempt Greg has the following utility function: u = x0.55x0.45. He has an income of $96.00, and he faces these prices: (P1, P2) (10.00, 8.00). Suppose that the price of x₁ increases by $1.00. Calculate the compensating variation for this price change. Give your answer to two decimals. $ =7. 3.1. Explain, with the aid of examples, the following economic concepts in terms of utility theory: 3.1.1 Total utility 3.1.2 Marginal utility 3.1.3 Weighted marginal utility 3.2 Assess how income elasticity of demand is used to define goods and services.Utility = x1x2. P1 = 10 and P2 =5. Income (m) = $200. The original utility maximizing quantities are: x₁ = 10 and x2 =20. If the price of x₁ increases to 15, the substitution effect will result in a new utility maximizing quantity of x1 = 6.67 8.33 12 None of the above
- Question 6 A consumer spends all of her income on two goods, coffee and doughnuts. She buys coffee at 25 cents per unit with a total utility of 800 and a marginal utility of 12. Doughnuts are purchased at 75 cents a unit with a total utility of 200 and a marginal utility of 24. To increase her total utility, the consumer should: Buy more coffee and less doughnuts Buy more of both goods Do nothing. She is currently maximizing utility with her limited budget. Buy less of both goods Buy more doughnuts and less coffee.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?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.
- 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).A consumer derives all of his utility from a single good; he devotes his entire income $10 to purchasing this good. Suppose the price rises from $2 to $6. What is the consumer's Equivalent Variation? Your Answer: Answer
- Total utility is the addition of all the marginal utilities that an individual derives from successive units. True or False?11. Let u(x₁, x₂) = x₁02x₂0.8. Suppose the consumer initially has income level m = 20 and the prices are p₁ = 4 and p2 = 1. Calculate the income and substitution effect when the price of Good 1 decreases to p₁ = 2. Based on your calculation, was the substitution or income effect larger for Good 2?Jeremy derives all of his utility from consuming milk shakes; he devotes his entire $20 allowance to milk shakes each week. Suppose the price of milk shakes rise from $2 to $4. Compute Jeremy's Compensating Variation and Equivalent Variation.