Week 4 Tutorial Questions - Tutorial Questions for Week 4...

Tutorial Questions for Week 4 beginning 21
st
March
1. Each week Bill, Mary and Jane select the quantity of two goods X and Y that they will
consume in order to maximise their respective utilities. They each spend their entire
weekly income on these two goods.
a. Suppose you are given the following information about the choices that Bill
makes over a three-week period:
X Y P
x
P
y
Week 1 10 20 2
Week 2 7 19 3
Week 3 8 31 3
Did Bill’s Utility increase or decrease between weeks 1 and 2 and between weeks 1
and 3? Explain using a graph. Identify the income and substitution effects that result
from a change in the price of good X (Hint: which weeks should you be using?)
Draw the demand curve(s) for X using the above data. Draw the PCC and the ICC.
b. Now consider the following information about the choices that Mary makes over
I
1 40
1 40
1 55