A consumer likes to consume ice cream in a mixture of 3 scoops of vanilla (v)...

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A consumer likes to consume ice cream in a mixture of 3 scoops of vanilla (v) and one scoop of strawberry (s) and does not want to consume any vanilla or strawberry ice cream by itself. (a) Draw the consumer's indifference curves and write his utility function. Assume he receives three utils from each mixture. You can put the vanilla ice cream on the vertical axis and the strawberry ice cream on the horizontal axis. (b) Suppose that the consumer has $32 per month allocated to ice cream consumption. Assume the price of vanilla ice cream is p = $4, and strawberry ice cream is ps $4. What is his optimal allocation for vanilla and strawberry ice cream? How much utility does he get from this allocation? There is a shortage in vanilla, resulting in p = $8. What is the new consumption bundle? (d) Using Hicksian decomposition, find this price change's substitution and income effects. (e) The consumer's roommate has ice cream preferences given by u(v, s) = 0.5 ln (v) + 0.5 ln (s). Suppose his ice cream budget is also $32, and he faces the exact price change. What would be the income effect and the substitution effect in her case? (f) What is the welfare implication of this price increase on each consumer? (g) Their friend wants to give them ice cream as a gift and was wondering if to give a cash or ice cream gift. What would you suggest to him? Consider the following utility u(x₁, 2; ₁) = (x₁ -₁)x2 with a + 3 = 1, 0 < a, 3 < 1, and r₁ > 0. The utility will be positive if r₁2 r₁ and T₂20. Assume the utility is zero for r₁ <r₁ and 2 <0. Good 1 is an addictive good with addiction level r₁. Examples of addictive goods are alcohol, drugs, or chocolate. The more you have consumed these goods in the past, the higher the addiction level 1₁. (a) Draw an approximate map of indifference curves for the case a = ß = 0.5. How does the utility change as r₁ changes? Comment on the sign of this change. (b) Find the Marshallian demand function for the two goods. (c) Is good 1 a normal good? (d) How does the level of addiction affect the consumption bundle? Comment on your result. A consumer likes to consume ice cream in a mixture of 3 scoops of vanilla (v) and one scoop of strawberry (s) and does not want to consume any vanilla or strawberry ice cream by itself. (a) Draw the consumer's indifference curves and write his utility function. Assume he receives three utils from each mixture. You can put the vanilla ice cream on the vertical axis and the strawberry ice cream on the horizontal axis. (b) Suppose that the consumer has $32 per month allocated to ice cream consumption. Assume the price of vanilla ice cream is p = $4, and strawberry ice cream is ps $4. What is his optimal allocation for vanilla and strawberry ice cream? How much utility does he get from this allocation? There is a shortage in vanilla, resulting in p = $8. What is the new consumption bundle? (d) Using Hicksian decomposition, find this price change's substitution and income effects. (e) The consumer's roommate has ice cream preferences given by u(v, s) = 0.5 ln (v) + 0.5 ln (s). Suppose his ice cream budget is also $32, and he faces the exact price change. What would be the income effect and the substitution effect in her case? (f) What is the welfare implication of this price increase on each consumer? (g) Their friend wants to give them ice cream as a gift and was wondering if to give a cash or ice cream gift. What would you suggest to him? Consider the following utility u(x₁, 2; ₁) = (x₁ -₁)x2 with a + 3 = 1, 0 < a, 3 < 1, and r₁ > 0. The utility will be positive if r₁2 r₁ and T₂20. Assume the utility is zero for r₁ <r₁ and 2 <0. Good 1 is an addictive good with addiction level r₁. Examples of addictive goods are alcohol, drugs, or chocolate. The more you have consumed these goods in the past, the higher the addiction level 1₁. (a) Draw an approximate map of indifference curves for the case a = ß = 0.5. How does the utility change as r₁ changes? Comment on the sign of this change. (b) Find the Marshallian demand function for the two goods. (c) Is good 1 a normal good? (d) How does the level of addiction affect the consumption bundle? Comment on your result.

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a The consumers indifference curves satisfy vs 3 Thus the indifference curves are straight lines giv... View the full answer