# C what bundle would bernice choose if she faced the

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(c)What bundle would Bernice choose if she faced the original prices andhad just enough income to reach the new indifference curve?(3,3).Draw with red ink the budget line that passes through this bundle atthe original prices. How much income would Bernice need at the originalprices to have this (red) budget line?\$9.
186CONSUMER’SSURPLUS(Ch.14)(d)The maximum amount that Bernice would pay to avoid the priceincrease is\$3.This is the (compensating, equivalent) variation inincome.Equivalent.(e)What bundle would Bernice choose if she faced the new prices and hadjust enough income to reach her original indifference curve?(4,4).Draw with black ink the budget line that passes through this bundle atthe new prices. How much income would Bernice have with this budget?\$16.(f)In order to be as well-off as she was with her original bundle, Bernice’soriginal income would have to rise by\$4.This is the (compensating,equivalent) variation in income.Compensating.Calculus14.6 (0)Ulrich likes video games and sausages. In fact, his preferencescan be represented byu(x, y) = ln(x+ 1) +ywherexis the number ofvideo games he plays andyis the number of dollars that he spends onsausages. Letpxbe the price of a video game andmbe his income.(a)Write an expression that says that Ulrich’s marginal rate of substi-tution equals the price ratio.( Hint:Remember Donald Fribble fromChapter 6?)1/(x+ 1) =px.(b)Since Ulrich hasquasilinearpreferences, you can solve thisequation alone to get his demand function for video games, which isx= 1/px1.His demand function for the dollars to spend onsausages isy=m1 +p.(c)Video games cost \$.25 and Ulrich’s income is \$10.Then Ulrich de-mands3video games and9.25dollars’ worth of sausages.His utility from this bundle is10.64.(Round off to two decimalplaces.)(d)If we took away all of Ulrich’s video games, how much money wouldhe need to have to spend on sausages to be just as well-off as before?\$10.64.
NAME187(e)Now an amusement tax of \$.25 is put on video games and is passedon in full to consumers. With the tax in place, Ulrich demands1video game and9.5dollars’ worth of sausages. His utility from thisbundle is10.19.(Round off to two decimal places.)(f)Now if we took away all of Ulrich’s video games, how much moneywould he have to have to spend on sausages to be just as well-off as withthe bundle he purchased after the tax was in place?\$10.19.(g)What is the change in Ulrich’s consumer surplus due to the tax?.45How much money did the government collect from Ulrich bymeans of the tax?\$.25.Calculus14.7 (1)Lolita, an intelligent and charming Holstein cow, consumesonly two goods, cow feed (made of ground corn and oats) and hay. Herpreferences are represented by the utility functionU(x, y) =xx2/2+y,wherexis her consumption of cow feed andyis her consumption of hay.

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Term
Spring
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Tags
Economics curves