403ps4 - Economics 403 Spring 2009 Professor Alexander...

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1 Economics 403 Spring 2009 Professor Alexander Problem Set 4 Due: Monday, February 2, at 11:00 A.M. R15. ( 4 pts. ) Based on R6, we know the following points lie on the demand curve for X: (2, $8), (4, $4), and (5, $3). We know this because of the particular thought experiment shown in the graph. Now let’s answer the question. We know that quantity demanded falls from 4 to 2 when price increases from $4 to $8. What is the percentage change in quantity demanded? 50 percent. What is the percentage change in price? 100 percent. Thus, 50 1 . 100 2 ε =−
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2 N3 or N4. ( 4 pts. ) Use this definition in either problem: . X P PX ε Δ = Δ a.) If . cX X Xc d Xcd P d d X Δ− =− ⇒ = −⇒= = Δ b.) 0 undefined; 0 0. XP X c =⇒= =⇒ =⇒= 22 If 1. eX e e P X e PP P P P =⇒ = ⇒= = Δ
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3 10. ( 6 pts. ) See graph in text. a.) In this graph, the budget line rotates out because the P X decreases or rotates in because P X increases. Let’s suppose that the budget line rotates out. We see that X decreases when P X decreases. Thus, X must be a Giffen good.
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This note was uploaded on 02/04/2009 for the course ECON 403 taught by Professor Alexander during the Spring '09 term at Western Michigan.

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403ps4 - Economics 403 Spring 2009 Professor Alexander...

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