What is smith demand for beer and stamps

Assignment Help Microeconomics
Reference no: EM132482329

Smith's utility function is U(x1, x2) = x1 + ln x2 x1 - stamps x2 - beer Smith's budget: p1 x1 + p2 x2 = m p1 - price of stamps p2 - price of beer m - Smith's budget

a) What is Smith's demand for beer and stamps?

b) Is it true that Smith would spend every Taka in additional income on stamps?

c) What happens to demand when Smith's income changes (i.e. find the income elasticity)?

d) What happens to demand when p1 and p2 increase (i.e. find the price elasticities)? [Hint: For a) Given prices, p1 and p2, find the quantities x1 and x2 which maximise Smith's utility!

Necessary condition: MRS= MU1/MU2; Find MRS; Optimum occurs when x2= p1/p2, Using x2, Find x1 from the given budget line

Reference no: EM132482329

Questions Cloud

Experience substitution effects : Two consumers, Eric and Eli, have the same preferences for good X, a normal good. The only difference is that for Eli there would be no income effect
Relationship between total product and marginal product : At what levels are there increasing returns to labor and at what levels are there decreasing returns to labor?
Price of an oompahorn in dollars : You have a monopoly over the production and sale of "Oompahorns," a patented new instrument for bands and orchestras. Your marketing experts
Consumer demand in equilibrium : Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium.
What is smith demand for beer and stamps : Smith's utility function is U(x1, x2) = x1 + ln x2 x1 - stamps x2 - beer Smith's budget: p1 x1 + p2 x2 = m p1 - price of stamps p2 - price of beer m - Smith's b
Start with an arbitrary utility function : Start with an arbitrary utility function u(x1, x2) that is differentiable. Let v (u) is a monotonic transformation of u.
How do i calculate total cost : How do I calculate total cost if I only know Marginal Cost, Marginal Revenue, Total Revenue, and quantity?
Describe what allocative efficiency means : Describe what allocative efficiency means and state why it is an important standard.
Analyzing of data to make an informed decision : What are some of the pros and cons from business analyzing of data to make an informed decision or making a quick decision to beat the competition

Reviews

Write a Review

Microeconomics Questions & Answers

  Discuss how international factor movements can be seen

Discuss how international factor movements can be seen as a substitute for international trade. How might they be seen as complements?

  What type of market structure is the auto industry

What type of market structure is the auto industry? Has consumer surplus been affected in any way due to the changes in the auto industry structure, and if so, how?

  How closely your industry fits the oligopoly model

Why did you select this product / industry? Rate, using a scale of 0 (nothing like) to 10 (exactly like), how closely your industry fits the oligopoly model?

  Economic article

Economic article 2 pages -Exports -Trade Agreement -National Income -World Bank

  How much will be in the savings account

Upon the birth of his first child, Dick Jones decided to establish a savings account to partly pay for his son's education. He plans to deposit $20 per month.

  Why do people confuse correlation with causation

Describe an innovation in technology, business, or culture that had a major economic impact in your lifetime. Why do people confuse correlation with causation?

  What is the projected savings for the firm?

What is the projected savings for the firm?

  How will the new tax affect the beer market

Among the tax proposals regularly considered by Congress is an additional tax on distilled liquors. The tax would not apply to beer. The price elasticity of supply of liquor is 4.0, and the price elasticity of demand is -0.2. The cross-elasticity of

  What factors have contributed to changes in supply of and

identify a good or service with which you are familiar. what factors have contributed to changes in the supply of and

  What is the total interest paid through the life of the loan

Assume that a piece of property is purchased for $500,000. A 20% down payment is made and the rest is financed through a 30-year mortgage loan with a 5.25%.

  Determine the pw index at a given interest rate

ABC Block Co. may buy a new machine that has a first cost of $10K. It will produce benefits for each of the next 6 years of $3000 while requiring $1400.

  How can paying an above-market wage result in a firm

In 1914, Henry Ford increased the wage he paid workers in his car factory in Dearborn, Michigan to $5 per day. This wage was more than twice as much as other.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd