Asked by Janay Johnson on Jun 03, 2024
Verified
Waldo's utility function is U(x, y) xy.Waldo consumes 5 units of x and 25 units of y.
A) Waldo would be willing to make small exchanges of x for y in which he would give up 5 units of x for every unit of y he got.
B) Waldo would be willing to trade away all of his x for y as long as he got more than 5 units of y for every unit of x he gave up.
C) Waldo likes x and y equally well so he is always willing to exchange 1 unit of either good for more than 1 unit of the other.
D) Waldo will always be willing to make trades at any price if he does not have equal amounts of the two goods.
E) None of the above.
Utility Function
An economic term describing how consumers rank different bundles of goods or levels of happiness.
Exchanges Of X For Y
Exchanges of X for Y refer to transactions where one item or service (X) is traded for another item or service (Y), highlighting the concept of barter or trade in economics.
Units Of X
A hypothetical measure used in economic models and problems to quantify the amount of a good or service, referred to as Good X.
- Quantify the repercussions of consumption modifications on utility indices.
- Scrutinize the choices of consumers and corresponding compromises by leveraging marginal rate of substitution (MRS) and indifference curves.
Verified Answer
LG
Linda GreerJun 09, 2024
Final Answer :
E
Explanation :
Waldo's utility function is U(x, y) = xy, which means his marginal rate of substitution (MRS) between x and y changes as the quantities of x and y change. None of the statements accurately describe how Waldo would trade between x and y based on this utility function, as his willingness to trade depends on the specific quantities of x and y he has, aiming to maintain a balance that maximizes his utility.
Learning Objectives
- Quantify the repercussions of consumption modifications on utility indices.
- Scrutinize the choices of consumers and corresponding compromises by leveraging marginal rate of substitution (MRS) and indifference curves.