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Problem 1 A family with two consumption goods

   

Added on  2019-11-20

10 Pages1259 Words320 Views
Running head: INTERMEDIATE ECONOMICSINTERMEDIATE ECONOMICSName of student:Name of University:Author note:

1INTERMEDIATE ECONOMICSTable of ContentsProblem 1..............................................................................................................1Problem 2..............................................................................................................5Problem 3..............................................................................................................6References.............................................................................................................7

2INTERMEDIATE ECONOMICSGood 10Problem 1A family has fixed income of $600 per month and it spends on consumption of two goods, good 1 and good 2. Let the price (p1) of good 1 be $2 and price (p2) of good 2 be $1 and x1denotes to quantity demanded of good 1 and x2 be quantity demanded of good 2. The utility function of the family be u(x1, x2) =x11/4 x23/41.Equation for budget line: Income(M)=p1x1+p2x2Family cannot spend more than p1x1+p2x2≤ MMarket BasketGood 1Good 2IncomeA0600600B100400600C200200600D3000600Table 1: Budget constraintGraph 1: Budget LineIn graph 1, good 1 plotted on horizontal axis and good 2 on vertical axis. M/P2 is the vertical intercept of the budget constraint which is 600. This vertical intercept illustrates the maximum amount of good 2 that can be purchased with fixed income $600.Good 2M/P2=600

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