Chapter 1 Key Spring 08

Chapter 1 Key Spring 08 - Econ 371 Chapter 1 Homework...

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Econ 371 Chapter 1 Homework Answer Key 1. Suppose your satisfaction, S, depends only on your purchases of cheese pizza (CP) and Pacifico beer (PB). Furthermore, assume that satisfaction is measured by the following function: S = (CP*PB). The price of Pacifico is given by P PB and the price of cheese pizza is given by P CP . Moreover, you need a minimum satisfaction level of 15 to survive. a. List the endogenous variables? S, CP and PB are endogenous. Satisfaction is endogenous because it is determined within the model by the amount of cheese pizza and Pacifico beer you choose. Cheese pizza and Pacifico beer are the choice variables and are therefore endogenous. b. List the exogenous variables? Price of Pacifico, P PB , the price of cheese pizza, P CP and income, I are exogenous. These are variables determined out side of the model and beyond our control. Therefore, they are fixed and exogenous to the model. c.
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Chapter 1 Key Spring 08 - Econ 371 Chapter 1 Homework...

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