Problem Set 1

# Problem Set 1 - Econ 2201 Problem Set 1(Due Q1 Suppose two...

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Econ 2201, Problem Set 1 (Due: 09/16/2015) Q1. Suppose two variables X and Y are related as follows: a. 36X = 2Z 2 + 4Y + 13 What is the elasticity of Y with respect to X, at the point X = 11 and Y = 6 (You need to compute ∆Y ∆ X X Y ) b. a log Y = b log X +C Compute the elasticity of Y with respect to X at points X=A and Y = B Q2. Consider four bundles: A=(2,5); B=(4,3); C=(3,4) and D=(4,2). Alex is indifferent between bundles A and B (i.e., A~B). Use the properties of rational and well behaved preferences to determine which of the two bundles, C or D the consumer prefers. Q3. (a). For two bundles, X and Y, we say that X (strictly preferred to) Y if X Y and it is not that Y X. If there are three bundles A, B and C, such that A B and B C, show that A C. (b). Two bundles, X and Y are indifferent if X Y and Y X. Show by transitivity of preferences that if A~B and B~C then C~A. Q4. A consumer’s preference relation over a bundle of goods, (X 1 , X 2 ) is rational and well behaved.

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