1. Hsieh still lives at home with his parents, and he loves to drive a family car. His father is complaining about the miles on the car, and has just told Hsieh to either drive 20% fewer miles, or pay $100 per month rent for the car in addition to the gas he already buys. If Hsieh does not reduce his driving, his effective income will fall, so therefore he will just suffer by driving less.
2. 2. Roberto almost always buys margarine, since it is cheap. He occasionally buys butter to impress certain dinner guests. Laticia almost always buys butter because it tastes so good. She occasionally buys margarine because it might be better for her than butter. Given that they both live in Houston and face the same prices ($3.00/lb for butter, $0.95/lb for margarine), one of them is i
ational since their marginal rate of substitution cannot equal the price ratio.
3. 3. Asmara has won a contest. The contest offers a gift certificate of $90 at a steak restaurant, or a cash prize of $75. If Asmara takes the cash, she has clearly not maximized her utility, since income is not maximized.
4. 4. The City of Houston provides water throughout the city, and the City charges people each month based on usage. Now, the City is wo
ied people are “overusing” water, thus they are requiring that usage be reduced by 20%. If usage is greater than 80% of the usage last year for the same month (that is, March 2021 compared to March 2020), the price for the “marginal” water will be 50% higher. The City is promoting the new restrictions on water usage by saying residents will save 20% off their water bill. Will utility rise under this scheme (required reduction in quantity, and therefore expenditure) rise? Why or why not?
5. 5. You are the Southwest Vice President for your company. You are in charge of a certain plant that has labor as 50% of its total costs. The new manager claims that she has been constrained, because when the labor price increased by 5% last year the quantity of labor could not be fully adjusted because the equipment was fixed. It is now time, however, to buy new equipment. The new manager is claiming she can reduce costs as a result. Even though it is time for new machinery, so its cost has become variable, you should be thinking about hiring a new plant manager.
XXXXXXXXXXpoints total) To reduce road congestion (as well as global warming), the Houston City Council is considering a plan to impose pricing on all roadways, although the prices will vary depending on how crowded the roads are at a particular time. Assume they can do this costlessly (like with EZ tags). Since the plan is likely to be expensive for drivers, the City Council is also considering reducing the city sales tax (maybe even to zero). This, they hope, will compensate consumers for the extra expenses they incur on the roads. a. (7) Consider Juan, a typical Houstonian, who will receive back from sales tax reductions exactly what he will pay in road prices. The price of driving (including all of his auto and gasoline costs) will rise, but his after-tax income will rise so his previous consumption bundle is still (just barely
7. b. (7) Now consider Daryl, who drives very little, but buys a lot of stuff and so he pays a lot of sales taxes. Assume he receives back in sales taxes more than he will pay in road prices. Show his situation graphically, and use the graph to show whether he is better or worse off.