A consumer has an income of $100 to spend on utilities (E), such as gas and electricity,
Question:
A consumer has an income of $100 to spend on utilities (E), such as gas and electricity, and all other goods (Y). The price of good Y is $1, and the price of utilities (E) is $2/unit. Suppose that the consumer’s utility function is given by U = 2EY with marginal utility of Y (MU Y ) being given by 2E and marginal utility of E (MU E ) being given by 2Y.
A. Graph the consumer's budget set, and label the budget constraint BC1. Put Y on the vertical axis and E on the horizontal axis. Include numerical values for the horizontal and vertical intercepts.
B. Find the utility maximizing quantities of E and Y for the consumer subject to the constraints on their purchasing power by solving the two necessary simultaneous equations. (Fractional results are allowed).
C. What is the consumer’s Marginal Rate of Substitution for E in terms of Y (MRS E,Y ) at the utility maximizing levels of E and Y?
D. What is the consumer’s maximum attainable utility?
E. To help low - income families make it through cold winters, suppose the government offers to subsidize half the price on all utility spending by the consumer. Graph the consumer's budget set, and label the budget constraint BC2.
F. Find the new utility - maximizing amounts of E and Y subject to the constraints on the consumer’s purchasing power with this utility subsidy described in part E. Also find the consumer’s new maximum level of utility
Fundamentals of Electric Circuits
ISBN: 9780073301150
3rd edition
Authors: Matthew Sadiku, Charles Alexander