Homework answers / question archive / 1)uppose a consumer's preferences are given by U(X,Y) - x*Y

1)uppose a consumer's preferences are given by U(X,Y) - x*Y

Economics

Share With

1)uppose a consumer's preferences are given by U(X,Y) - x*Y. Thus, the marginal utility of X, MUX - Y and the marginal utility of Y, MUY - X. Suppose the consumer has $100 to spend and the price of good Y is $1. Sketch the price-consumption curve for the prices of Px - $1, PX - $2 and Px = $5. To do this, carefully draw the budget constraints associated with each of the prices for good X, and indicate the bundle that the consumer chooses in each case. Also, be sure to label your graph accurately.

2)A point on a PPF is productively efficient. If we want to increase the output of good Y, what happens to good X and why? [1] b) Explain why the PPF has a convex shape. What does this mean for opportunity costs? [3] c) If technology improved in making good X, explain what would happen to the opportunity cost of Y. [2] d) The table shows two points on a PPF Point A Point 6 m tonnes wheat 4 mtonnes wheat 3.5 m tonnes canola 5.5 m tonnes canola i) Calculate the MC as we move along the PPF from A to B. [2] ii) Explain the relationship between MC and opportunity cost in this case. [2] iii) Why does a MC curve have a positive slope? iv) Calculate the MB as we go from B to A. Explain how you got this answer. [3] e) The analysis of MB is based on willingness to pay and ignores whether or not people are able to pay. Does mean that the analysis is wrong? Explain. [2] f) What is meant by the term allocative efficiency? Explain with an example of how a firm might make a decision that leads to allocative efficiency. [2] Firm one Firm 2 100kg potatoes 90kg potatoes or or 75kg tomatoes 120kg tomatoes.

3)With help of illustrations, explain; physical hazard, moral hazard, morale hazard and legal hazard.