- Pay For Your Dissertation | Cheap and Secure PhD Writers
- support@payfordissertation.com

Assignment Two

Answer the following questions completely

and neatly. All answers must be

supported by discussions and/or mathematical procedures.

1. An Income Consumption Curve is defined as a set of combinations of goods corresponding

to constrained utility maximization solutions for different levels of money

income, while holding the prices of the goods constant. Please help Paul with the development of his Income Consumption Curve using the

following information. Paul is the third

grader who likes only Twinkies (T) and Orange Slice (S), and these provide him

a utility of

Utility = U(T, S) = T0.3S0.7

Assumption # 1: Twinkies cost $0.10 each and Slice costs

$0.35 per can. Paul spends the $1 his

mother gives him in order to maximize his utility.

Assumption # 2: Paul’s mother increases his allowance to $2

per day.

Assumption # 3: Paul’s mother increases his allowance to $3

per day.

Label the graph carefully and mark the optimal quantities of

T and S on the graph.

Also, derive an indirect utility function for Paul under the

assumption that the school has increased the price of Twinkies to $0.25

each. What is Paul’s compensated demand

function? Use the minimum expenditure function

to determine the minimum cost of keeping Paul as happy as he was under

assumption # 1.

All answers must

be supported by computations and/or graphs.

In your explanation of each concept, identify the variables

that are assumed to be constant and those that vary. In addition, use a hypothetical situation to

derive (graph) a Marshallian

(uncompensated) demand function and its corresponding Hicksian (compensated) demand function.

2. Suppose

that an individual’s utility for X and Y are represented by the CES function

(for δ = -1).

a. Use the Lagrangian Multiplier Method to

calculate the uncompensated demand function

for X and Y for this function.

b. Show that

the demand functions calculated in part (a) are homogeneous of degree zero in PX, PY and I.

c. How do

changes in I or PY shift the demand for good X?

All answers must

be supported by computations and/or graphs.

3. You are

given the following information about copper in the United States:

Situation with Tariff

Situation Without Tariff

World Price (delivered in New York)

$0.50 per lb

$0.50 per lb

Tariff (specific)

$0.15 per lb

0

U.S. Domestic Price

$0.65 per lb

$0.50 per lb

U.S. Consumption

200 million lbs

250 million lbs

U.S. Production

160 million lbs

100 million lbs

Calculate:

The loss to U.S. consumers from the imposition of the tariff.The gain to U.S. producers from the imposition of the

tariff.The revenue generated by the imposition of the tariff.The net effect of the imposition of the tariff on the

U.S. as a whole.Use

two separate graphs (one for the U.S. copper market and one for the world

market) to describe the free-trade equilibrium and the restricted-trade

equilibrium in the two markets.

All answers must be supported by computations and/or graphs.

4. Val has the

following utility function: U = U(X1, X2) = 3X10.5X20.5

Let P1

= $8, P2 = $6, and I = $120.

Derive the

Lagrangian Expression and solve for the first-order conditions. Use the first-order condition to solve for

Val’s utility-maximizing bundle (consumer equilibrium).

All answers must

be supported by computations and/or graphs.

You must show your work neatly and completely.

“Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!”