Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Chapter 3, Problem 3.2P
a
To determine
To prove: Whether the given function shows diminishing MRS and constant utility
b)
To determine
Whether the given function shows diminishing MRS and increasing utility
c)
To determine
Whether the given function shows diminishing MRS decreasing utility
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4. If we have the utility function, U(x)=(x−7)^2, and we know that there is an indifference set around x = 4 and an upper contour set of x = 6.
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a good is normal, then an increase in the price of the good will lead to which of the following to be true for this good? (Assume that there are only two goods, the individual's preferences lead to well-behaved preferences with strictly convex indifference curves and an interior solution for all budgets). Let SE = substitution effect, IE = income effect)
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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).
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