W3 - Economics 11 Microeconomic Theory 1 Professor Christian Hellwig Practice Problems Week 3 1 Define the utility functions and draw the

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 11: Microeconomic Theory 1 Professor Christian Hellwig Practice Problems Week 3 1) Define the utility functions and draw the indifference curves for each of the following cases: a) “Every time I consume one unit of X, I want to consume 2 units of Y” b) “If the price of X is bigger than the price of Y, I will only consume Y. If the price of Y is bigger than the price of X, I will only consume X” c) “I don’t care about the prices of X and Y, I only want to consume Y” 2) Suppose John views butter and margarine as perfectly substitutable in the ratio of one to one for each other. a) Draw a set of indifference curves that describes John’s preferences for butter and margarine. b) If Butter costs $2 per package, while margarine cost only $1, and John has a $20 budget to spend for the month, which butter-margarine combination will he choose? Can you show this graphically? What happens when the price of margarine increases to $3? 3)
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/05/2009 for the course ECON 11 taught by Professor Cunningham during the Spring '08 term at UCLA.

Ask a homework question - tutors are online