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ps3 301 f06_ProblemSet

# ps3 301 f06_ProblemSet - Econ 301 F06 PROBLEM SET 3 due in...

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Econ 301 – F06 PROBLEM SET 3 - due in class on Monday October 2 Wissink 1. For changes in Px, diagrammatically show what the price consumption curve looks like for the following utility functions: u(x,y) = xy; u(x,y) = x + y; u(x,y) = min{x,y}. 2. For changes in I, diagrammatically show what the income consumption curve looks like for the following utility functions: u(x,y) = xy; u(x,y) = x + y; u(x,y) = min{x,y}. 3. For changes in Px, diagrammatically show the income and substitution effects ala’ Hicks for the following utility functions: u(x,y) = xy; u(x,y) = x + y; u(x,y) = min{x,y}. 4. Derive the demand functions for x & y for the utility function: u(x,y) = y + bln(x). 5. Initially a consumer with money income of \$100 chooses between goods x and y (there are no other goods) which have prices Px and Py both equal to \$2.00. The person is buying 30 units of x and 20 units of y. a. Graph the initial equilibrium. b. Now suppose that prices change so that Px = \$3.00 and Py = .50. What is the cost of the original bundle at the new set of prices? Is the original bundle affordable? c. Explain fully the consumer's final equilibrium position under the new set of prices and show it on your graph.

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ps3 301 f06_ProblemSet - Econ 301 F06 PROBLEM SET 3 due in...

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