Question

Recent research by economists David Cutler, Edward Glaeser, and Jesse Shapiro on Americans' increasing obesity points to improved technology in the preparation of tasty and more caloric foods as a possible explanation of weight gain. Before World War II, people rarely prepared French fries at home because of the significant amount of peeling, cutting, and cooking required. Today French fries are prepared in factories using low-cost labor, shipped frozen, and then simply reheated in homes. Paul consumes two goods: potatoes and leisure, N. The number of potatoes Paul consumes does not vary, but their tastiness, T, does. For each extra unit of tastiness, he must spend p hours in the kitchen. Thus, Paul's time constraint is N+pT = 24, and Paul's utility function is U = T(N)05. Paul's marginal rate of substitution (MRS), with T measured on the horizontal axis and N measured on the vertical axis, is MRS = - - (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a fraction can be created with the / character.) Paul's marginal rate of transformation (MRT), with T measured on the horizontal axis and N measured on the vertical axis, is MRT = -1 Paul's optimal choice, (T*,N*), is T* = and N*=) (Properly format your expression using the tools in the palette.) With a decrease in the price of taste (the ability to produce a given level of tastiness faster), does Paul consume more taste (and hence gain weight) or spend more of his time in leisure? Does a decrease in the price of taste contribute to weight gain? A decrease in the price of taste:

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Answer 1

Answer: Given Data: Paul Consumer two good, Potato ex and leisure, N. the Number of potatoer paul consumes deses not very, but their tastiness, T, does . spend p houre in the kitchen. he must therefore, Paul's time constraint ů N +PT = 24 Pauls utility function ů U = T(N)05 Paulie marginal rate of Substitution. (MRS), with T measured on the horizontal axis and N measured on the vertical axis Time constraint : N+PT = 24 utility function: U=(1) N) a5 MRS = -MOZ MUN Мост = 0.5 MON=0.57N 0.5 015+0.5 MRS = - Nos os - NST 0157 057905 - IMRS = -N (Marginal rate of 0.5T Substitution)

Paul's marginal rate of them afermation (met), - MRT = 7 = -1 MRT = -P / Paul's optimal choice (77, art) : At optional MRS - MRT contraint, we get: We .: N=0.5pt put this in the time N+PT = 24 0:5pT+PT = 24 1:5pt = 24 T= 2 .:7* = Coptimal choio oft) Now put Value of T in N= 0.5pt , we get N = 0.5PC N= (05 (16) - 8 IN+= 8 (optimal choice of N) /