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microeconomics utility question!!

  • 14-08-2009 4:33pm
    #1
    qwertykeyboards
    Closed Accounts Posts: 48 ✭


    having trouble with a microeconomics question, here it is:

    Its 2008 august paper from DCU (attached) question 5 c.

    the first 3 parts (but mainly part (iii)) are giving me problems. it doesnt give you the price of good 2 in the question but i have assumed it to be 1.60 by solving for p2 in one of my x2 formulas earlier in the question. is this right?

    part 1 resultant change...i got 16.67 being the change (x1 = m/5p1 = 66.67 - 50 = 16.67) is this correct?

    part 2 how much does the subsidy cost the govt?
    ran into trouble here as ive no p2. i said cost of subsudy to govt is 16.67 units. should this be €5 or what shoud it be?? and how derived if different to mine?

    part 3...evaluate EV of subsidy
    i followed the example in the notes for this but got a weird answer that cant be correct. what is x2 and p2? i have x2 as 50 and p2 as 1.60 but they could be anything really as it doesnt specify. with that i plugged them into my formula and got u = 50. then i got m = 100.04.
    i subtracted 200 from this to get ev of -99.96 which cant be right??

    if you could help me out here it wud be unbelievable.
    thanks.


Comments

  • #2
    gerry87
    Registered Users, Registered Users 2 Posts: 872 ✭✭✭gerry87


    You went wrong when you were trying to get E. In the first part you solved for x1 and x2, where x1 was the number of good 1 and x2 was the number of good 2.

    In part b there's a little trick, F is the number of units of fruit, but E is 'expenditure on all other food' or in other words the total number of other food times the price of other food. So all you have to do is find F using your formula, multiply it by the price and subtract it from the income. That gives you your 'expenditure on other food' which is E. There's no need to split it up int price and quantity.

    Then use F and E to find utility. Part c is pretty straight forward from there.

    Not too sure on the EV part of it, but does your formula make more sense now?

    Let me know what answers you get and ill tell ya if i got the same.


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