h3 - The Colorado College Department of Economics and...

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1 The Colorado College Department of Economics and Business Block 7 Econ 207 HW 3. 1. Consider the following utility function of a consumer. 6 . 2 4 . 1 q q U = where q 1 and q 2 are the two goods purchased. The consumer’s income is $100 and the price of q 1 and q 2 are $2 and $4, respectively. (a) Set up the consumer’s Lagrangian function and derive the equilibrium amounts of the two goods purchased. (4+4 = 8 points) (b) What is the consumer’s utility. (2 points) 2. The Jones family spends all its income on food and shelter. It derives maximum utility when it spends two-thirds of its income on shelter and one-third on food. (a) Use this information to calculate the demand functions for shelter and food. Show that demand is homogenous with respect to changes in all prices and income. (b) What is the demand function for shelter and food for the Jones family if family income is $20,000? (c) What is the demand function for shelter and food for the Jones family if family
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h3 - The Colorado College Department of Economics and...

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