Exam 8: Buying and Selling-Part A

If a consumer is a buyer of some goods and a seller of others, then a change in prices will generate an extra income effect in the Slutsky equation due to the revaluation of the consumer's endowment.

Susan's utility function is U(x, y)= (x + y)R², where x and y are the quantities of goods X and Y that she consumes and R is the number of hours of leisure that she has per day.Good X costs 4 dollars per unit and good Y costs 2 dollars per unit.Her wage rate is 8 dollars per hour and she has 15 hours per day to allocate between labor and leisure.She will

Dudley has a utility function U(C, R)= C - (12 - R)², where R is leisure and C is consumption per day.He has 16 hours per day to divide between work and leisure.If Dudley has a nonlabor income of $35 per day and is paid a wage of $6 per hour, how many hours of leisure will he choose per day?

Rhoda takes a job with a construction company.She earns $5 an hour for the first 40 hours of each week and then gets "double-time" for overtime.That is, she is paid $10 an hour for every hour beyond 40 hours a week that she works.Rhoda has 70 hours a week available to divide between construction work and leisure.She has no other source of income, and her utility function is U = cr, where c is her income to spend on goods and r is the number of hours of leisure that she has per week.She is allowed to work as many hours as she wants to.How many hours will she work?

Tomoko receives a lump sum child support payment of $200 per week.She has 80 hours a week to divide between labor and leisure.She earns $5 an hour.The first $100 per week of her labor income is untaxed, but all labor income that she earns above $100 is taxed at the rate 50%.If we graph her budget line with leisure on the horizontal axis and consumption on the vertical axis, her budget line has

Nick insists on consuming 3 times as much of y as he consumes of x (so he always has y = 3x).He will consume these goods in no other ratio.The price of x is 2 times the price of y.Nick has an endowment of 20 x's and 75 y's which he can trade at the going prices.He has no other source of income.What is Nick's gross demand for x?

Marsha Mellow is very flexible.She consumes x and y.She says, "Give me x or give me y, I don't care.I can't tell the difference between them." She is currently endowed with 8 units of x and 17 units of y.The price of x is 3 times the price of y.Marsha can trade x and y at the going prices but has no other source of income.How many units of y will Marsha consume?

Quincy consumes only uglifruits and bananas.His only source of income is an initial endowment of 30 units of uglifruits and 10 units of bananas.Quincy insists on consuming uglifruits and bananas in fixed proportions, 1 unit of uglifruits per 1 unit of bananas.He initially faces a price of $20 per unit for each fruit.The price of uglifruits rose to $40 per unit while the price of bananas stayed unchanged.After the price change, he would

Lucetta changes light bulbs.She is paid $10 an hour.She can work as many hours as she wishes.Lucetta works only 6 hours a day.But she says she loves her job and is happier working at this job than she would be if she made the same income without working at all.Though this may sound strange, Lucetta is perfectly rational.Draw a graph showing leisure on the horizontal axis and income on the vertical axis.Draw a budget line and some indifference curves for Lucetta that are consistent with Lucetta's words and actions.Explain in words what happens.

A person's full income is the amount of income that he or she would have if there were no taxes.

Aristotle earns 5 dollars per hour.He has 110 hours per week available for either labor or leisure.In the old days he paid no taxes and received nothing from the government.Now he gets a $200 payment per week from the government but he must pay half of his labor income in taxes.(His before-tax wages are the same as they were before, and he has no other source of income than wages and payments from the government.)He notices that with the government payment and his taxes, he can exactly afford the combination of leisure and consumption goods that he used to choose.How many hours per week did he work in the old days?

Mr.Cog has 18 hours per day to divide between labor and leisure.His utility function is U(C, R)= CR, where C is dollars per year spent on consumption and R is hours of leisure.If he has 19 dollars of nonlabor income per day and gets a wage rate of 15 dollars per hour when he works, his budget equation, expressing combinations of consumption and leisure that he can afford to have, can be written as

If leisure is an inferior good, then an increase in the wage rate will make a person work more.

Milton consumes two commodities in a perfect market system.The price of x is $5 and the price of y is $1.His utility function is U(x, y)= xy.He is endowed with 40 units of good x and no y.Find his consumption of good y.

Suppose a consumer is initially endowed with a positive amount of two goods, sells some of one to get more of the other, and has no other sources of income.If the price of one good falls, his new budget line is everywhere above his old budget line.