PS 3 Sol

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

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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

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

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

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