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The Rational Consumer

1. To say that you can't have too much of a good thing means that for any good that you enjoy (say pizza), a. higher consumption will always lead to greater utility b. higher consumption will cause utility to increase at an increasing rate c. higher consumption will increase utility but only up to a point; after that utilit

Demand: Utility and Marginality

The political philosophy of redistributing income: Utilitarianism Utilitarianism: the political philosophy according to which the government should chose policies to maximize the total utility of everyone in society. Liberalism Liberalism: the political philosophy according to which the government should chose policie

Marginal utility.

Q1: Exercise and Total Utility The table below shows a consumer's total utility from consuming hours of exercise at the gym. Given this information, what can be said about this consumer's marginal utility curve for exercise? A) Marginal utility initially decreases, but eventually increases as more exercise is consumed.

Consumer Behavior

Income and substitution effects 1.The income effect indicates that: A)a rise in money income will cause consumers to buy smaller quantities of normal goods. B)when the price of a product falls, the lower price will induce the consumer to buy more of that product now that it is relatively cheaper. C)consumers should subs

Multiple choice questions in microeconomics

Please answer by choosing one of the multiple choice answers. Answer the following 1.Scarcity 1.exists because people have wants that are unlimited relative to the availability of resources to satisfy those wants 2.creates a need for society to allocate goods according to some set of criteria 3.means tha

Expected Utility, Relative Risk Aversion

An expected utility maximizing individual has utility of eno-of-period wealth given by u(W)= W^(1-y)-1, if y is not equal to 1 ln(W), if y=1 1. Show that this individual has constant relative risk aversion and decreasing absolute risk aversion. 2. Consider the special case where y=2. Suppose that this individu

Marshallian/ Hicksian Demand Functions

An individuals preferences over goods x=(x1,x2) can be represented by the following utility function: u(x)= ln(x1-b)+ ln(x2) The individual faces prices p=(p1,p2)>>0 and has income m>p1b>0 Why is it important that m>p1b? What is the interpretation of the coefficient b? Do the demand function

A consumer can live up to two periods, but is uncertain about surviving to period 2. How is his/her optimal consumption choice affected? What if he/she can survive to the next period with certainty, but might need to pay to get well? How much will he/she insure if insurance is actuarially fair? How does his/her insurance coverage relate to such concepts as equivalent variation and compensating variation? Please see the long description for exact statement of this problem.

Suppose that individuals potentially live for two periods. The utility function in each period is given by: u(ci)= c^(1/2) where ci is period i's consumption. Every individual receives income m, in the first period. This income can be used to finance consumption in that period, or it can be saved at zero interest to fin

Levels of Satistfaction Based on Price

5) Suppose an individual has the utility schedule: Q UTILITY IN DOLLARS 0 0 1 100 2 180 3 250 4 300 5 340 6 370 7 390 8 400 A)Suppose P=55. What is the individual's optimal level consumption? What is his level of net satisfaction from this good? B)Suppose p=15. What is the individual's optimal level

compute the marginal utility per dollar

Mary is consuming 3 hot dogs and 2 Cokes at the Bucs game. The marginal utility of the third hot dog is 60 utils and the marginal utility of the second Coke is 180 utils. The price of a hot dog is $1 and the price of a Coke is $4. From the information given, we can see that Mary consumed too many (hot dogs, Cokes) and too fe

Equilibrium price

1. A consumer is at equilibrium at one of the 4 points (A, B, C, or D) shown in Figure 1 (attached to this assignment). a. If we know that the consumer is maximizing his/her utility, and that the price of Skittles is not the same as the price of M&M's, at what point is the consumer operating? Explain your logic. b. If the pric

Solve accounting problems

PE 2-14 Expanded Accounting Equation Use the expanded equation to compute the missing quantity. Assets Liabilities Capital Stock Retained Earnings Case A $23,000 $11,000 A $ 4,500 Case B 17,500 B $ 4,500 3,600 Case C C 14,000 11,000 27,000 Case D 45,000 29,000 18,000 D

Choice Under Uncertainty

(a) Explain what it means that a consumer has preferences over lotteries (in particular, define lotteries). (b) Explain what it means that the preference relation has a utility function representation, and define the notion of a von Neumann-Morgenstern utility function.

Risk, uncertainty and information

1- An agent, with wealth 50, faces a probability 0.2 of a loss 35. The agent is offered insurance at a premium rate of 0.25. The agent has the von Neumann-Morgenstern utility function, u=lnx, where x is wealth. How much insurance should the agent buy? 2 - Show that a risk averse agent offered terms worse than actuarially fair


3.Early Classical economists found the following "diamond/water" paradox perplexing: "Why is water, which is so useful and so necessary, so cheap, when diamonds, which are so relatively unnecessary, are so expensive?" In modern economic terms, explain the water/diamond paradox.

Ice Cream and Utility Maximization

PART 1 Please answer the following question: Bob values the utility of a single scoop of Baskin-Robbins ice cream at $1.50. A double scoop gives total utility of $2.25, while a triple scoop yields $2.60. Baskin-Robbins charges $1.35 for a single, $1.95 for a double, and $2.35 for a triple. How many scoops will Bob buy?

Economics: Law of Diminishing Marginal Utility

1. Which gives you greater total utility, 12 gallons of water per day or 20 gallons per day? Why? 2. At which level do you get greater marginal utility, 12 gallons per day or 20 gallons per day? Why?

Risk, Uncertainty and Information

A firm hires a worker, and the worker chooses between two levels of effort (e), e=1 and e=4. Hiring the worker provides profits (s), and there are two possible levels of profits, s=40 and s=280. If e=1, the probabilities are 0.8 of s=40, and 0.2 of s=280. If e=4, the probabilities are 0.5of s=40 and 0.5 of s=280. The worker's ut

Risk, Uncertainty and Information

Traders are divided into 2 groups, sellers and buyers. Each seller sells one or no cars, and each buyer buys one or no cars. There are more buyers than sellers and the market is competitive. Cars can be "lemons" with quality q=1 or "peaches" with quality q=3. The proportion of lemons is ½. The von Neumann Morgenstern utility fu

Risk, Uncertainty and Information

Important Note: Please try to use mathematical notation as much as you can to demonstrate your answer, but don't forget to carefully define each step you make. Question (a) Define "risk averse". (b) Why does a risk averse agent offered actuarially fair insurance choose to insure fully? (c) What does the agent choose if t

Risk, Uncertainty and Information

Important Note: Please try to use mathematical notation as much as you can to demonstrate your answer, but don't forget to carefully define each step you make. Question (a) What is expected utility theory? (b) On what assumptions is the theory based, and how plausible are these assumptions? (c) Explain the Ellsberg par

Using utility function to solve for optimal choice

Suppose that the typical consumer has the following utility function: U(N, Y) = N×Y, where Y = income or expenditures on goods, and N = leisure (non-work) hours. The wage rate is given by w = $10. The consumer is initially taxed at the proportional rate of t1 = .4. The consumer has no unearned income (Y* = 0). The time const

Utility Maximization Exchange Economy

This question is about Walrasian equilibrium in an exchange economy with 2 goods and 2 consumers. Taxes are introduced in the question to solve for the equilibrium and allocation under Pareto theorem. Question (2) Consider an exchange economy with 2 goods and 2 consumers . Consumer 1's initial endowment is and consum

Consider an exchange economy with two consumers and three goods

The attached question is about 2 consumers with 3 goods in an exchange economy. The consumer's utility functions are given. The question asks to find demand functions for each consumer as well as finding Walrasian equilibrium under certain assumptions. Thanks Question (1) Consider an exchange economy with