PS 3 Sol - Problem Set 3 Solutions ECON 101-Spring 2008...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set 3 Solutions ECON 101 Spring 2008 Problem 1 i. Beef The slope of this budget line is (-20/100)=-1/5. 100 ii. Beef Note that the indifference curves are in fact straight lines, as Ben has constant linear preferences between beef and chicken. 80 100 120 Chicken 20 Chicken 20 25 30
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Beef What is the highest indifference curve that can be reached? It is the indifference curve obtained from purchasing only chicken. This is true because the ratio of prices is 4 to 1, while to ratio of utilities is 5 to 1. 80 100 120 Thus Ben’s optimal consumption is 100 chicke n and 0 beef. iv. Beef The slope of this budget line is (-50/150)=-1/3. Old New 100 150 v. Beef Here, the optimal consumption is 50 beef and 0 chicken. Once again, the marginal ratio is valuations is not equal to the price ratio. So his consumption of beef has increased and his consumption of chicken has decreased. 100
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/13/2008 for the course ECON 101 taught by Professor Hansen during the Spring '07 term at Wisconsin.

Page1 / 4

PS 3 Sol - Problem Set 3 Solutions ECON 101-Spring 2008...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online