01 - Fall 2008 Econ 3130 Problem Set 1: Budget Sets This...

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Fall 2008 Econ 3130 Problem Set 1: Budget Sets This problem set must be done on graph paper. If a problem calls for two or more graphs on the same axes, use different colors. 1. You have a wealth of $400 to spend on two commodities. Commodity 1 costs $100 per unit, and commodity 2 costs $50 per unit. (a) Write down your budget inequality. (b) If you spent all your wealth on 1, how much could you buy? (c) If you spent all your wealth on 2, how much could you buy? (d) Graph the budget set. (e) Suppose the price of commodity 1 drops to $50 per unit. What is the new budget inequality? Graph the new budget set on the axes you previously drew. (f) Suppose the price of both commodities remains at $50 per unit, but your wealth falls to $300. What is the new budget inequality? Graph it on the same axes. 2. You were consuming 10 units of X and 50 units of Y . The price of X was 2 and the price of Y was 4. You were spending all your wealth. (a) What is the budget inequality? Graph the budget set.
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This note was uploaded on 09/11/2008 for the course ECON 3130 taught by Professor Masson during the Fall '06 term at Cornell University (Engineering School).

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01 - Fall 2008 Econ 3130 Problem Set 1: Budget Sets This...

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