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Problem 2 In the 1970s, gasoline was rationed in many countries. In this exercise, we will see how this affects demand. A consumer maximizes the utility function $u(G, R) = 0.05 \ln(G) + 0.95 \ln(R)$ where G is her gasoline consumption in liters and R is remaining expenditures in euros. The price of gasoline is $p_G = 1$ euro per liter (hint: work with general $p_G$ first), the price of the other expenditures are $p_R =$ 1 by definition. Income is m. a) How much gasoline will the consumer buy if she is allowed to buy at most 20 liters of gasoline? b) Now assume that the consumer can additionally buy unlimited gasoline on the black market at a price of 1.40 Euro per liter. How much gasoline will she buy on the black market? c) Plot both consumption decisions on a graph.

          Problem 2
In the 1970s, gasoline was rationed in many countries. In this exercise, we will see how this affects
demand. A consumer maximizes the utility function $u(G, R) = 0.05 \ln(G) + 0.95 \ln(R)$ where G is
her gasoline consumption in liters and R is remaining expenditures in euros. The price of gasoline is
$p_G = 1$ euro per liter (hint: work with general $p_G$ first), the price of the other expenditures are $p_R =$
1 by definition. Income is m.
a) How much gasoline will the consumer buy if she is allowed to buy at most 20 liters of gasoline?
b) Now assume that the consumer can additionally buy unlimited gasoline on the black market at a
price of 1.40 Euro per liter. How much gasoline will she buy on the black market?
c) Plot both consumption decisions on a graph.

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Problem 2
In the 1970s, gasoline was rationed in many countries. In this exercise, we will see how this affects
demand. A consumer maximizes the utility function u(G, R) = 0.05 ln(G) + 0.95 ln(R) where G is
her gasoline consumption in liters and R is remaining expenditures in euros. The price of gasoline is
pG = 1 euro per liter (hint: work with general pG first), the price of the other expenditures are pR =
1 by definition. Income is m.
a) How much gasoline will the consumer buy if she is allowed to buy at most 20 liters of gasoline?
b) Now assume that the consumer can additionally buy unlimited gasoline on the black market at a
price of 1.40 Euro per liter. How much gasoline will she buy on the black market?
c) Plot both consumption decisions on a graph.

Added by Alexander W.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Brent Burkett

01/15/2022

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05 ln(G) + 0.95 ln(R) subject to the constraint G ≤ 20. Show more…

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Please don't give it to the Chat GPT. Problem 2 In the 1970s, gasoline was rationed in many countries. In this exercise,we will see how this affects demand. A consumer maximizes the utility function u(G,R) = 0.05 ln(G) + 0.95 ln(R) where G is her gasoline consumption in liters and R is remaining expenditures in euros. The price of gasoline is Pa = 1 euro per liter (hint: work with general pa first), the price of the other expenditures are PR 1by definition.Income is m. a) How much gasoline will the consumer buy if she is allowed to buy at most 2o liters of gasoline? b) Now assume that the consumer can additionally buy unlimited gasoline on the black market at a price of 1.40 Euro per liter.How much gasoline will she buy on the black market? C) Plot both consumption decisions on a graph.

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