isi

[ritu]

a consumer consumes electricity(x) and other goods(y).the price of y is 1.to consume x he has to pay a rent of "R" and a per unit price of p...however p increases with quantity of x by relation:p=0.5x.
U=X+Y nd income  I >R
1. draw budget line (pls explain how we draw it)
2.if R=0 AND I = 1 find optimum bundle....{i got three cases  depending on relation btwn mrs nd price ratio}
3.what maximum r can be extracted  from consumer....

want to clarify that i tried to draw budget line nd got a parabole (inverse U) CENTRE AT (0,I-R)
PLS TELL IF ITS WRONG ND DO TELL 3RD PART...


A consumer consumes only two goods x and y.price of x in local mkt is p &that in distant mkt is q where p>q.hpwever for going there a fixed cost of c has to ne incurred.income of consumer is i and i>c...if x0 is eqm consumptn of x nd consumer has smooth downward slopinf nd convex ic's then which must necessarily hold....
a.(p-q).xo=C always holds
b.(p-q).xo=C never holds
c.(p-q).xo=C may or maynt hold depending on preference of consumer
d.none of above



if there is no money illusion once you know all the price elasticity of demand for a commodity you can calculate its income elasticity....true/false

[anon_econ]

Hey for the first one ur graph is right but the y-intercept would be I bcoz if u consume 0 of x, u don't have to pay R. so the bc is discontinuous. for part 2 i'm just getting 1 and 1/2 (by putting slope of the bc=1). and for the last one u want to have R as high as possible w/o him deciding to give up consumption of x altogether (he wud do it if R is too high). U when x=0 is I and U when x>0 is 1+I-R-1/2. U need the latter to be at least as high as the former. so max r is 1/2.

[anon_econ]

for question 3 demand function will be homogeneous of degree 0 in prices and income. use euler's theorem now.

[Chocolate Frog]

ritu wrote

A consumer consumes only two goods x and y.price of x in local mkt is p &that in distant mkt is q where p>q.hpwever for going there a fixed cost of c has to ne incurred.income of consumer is i and i>c...if x0 is eqm consumptn of x nd consumer has smooth downward slopinf nd convex ic's then which must necessarily hold....
a.(p-q).xo=C always holds
b.(p-q).xo=C never holds
c.(p-q).xo=C may or maynt hold depending on preference of consumer
d.none of above

Any suggestions about how to go about this one? I think the answer should be (c), but I'm not nearly as confident as I'd like to be. :/

[anon_econ]

This was discussed here:
http://discussion-forum.2150183.n2.nabble.com/isi-2004-td7424769.html
I don't remember this question but I remember that I had doubts about it till the end.

[lovekesh]

Hey Ritu
For the max value of R part you can try this way. The max value of r will be making him indifference between consuming and not consuming. But we would like him to consume so we would assume that he will consume x.
Utility when x=0 is I
Utility when x>0 is I-R -0.5x^2 +x
equating both, we will get
r= x-0.5x^2
Since R(x), therefore, maximizing give us x=1
You get R=1/2

[Amit Goyal]

The answer is (b) (p-q).x0=C never holds. If you plot the budget constraint min{px + y, qx + C + y} <= I (assuming price of y is 1). Its going to be kinked and will have a budget boundary that is convex to the origin. If you choose x0 at the kink then (p-q).x0 = C will hold. But if the ICs are smooth and convex this possibility is ruled out.

[Chocolate Frog]

Of course! I had forgotten about the IC's being smooth and convex.

Thanks a lot, sir!

[ritu]

thank u soo much sir....:))