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Unformatted text preview: Intermediate Microeconomics Homework Set 1: Budget Set and Preferences Due 09/10 (Beginning of class) Exercise 1 You have an income of $50 to spend on two commodities. Commodity 1 costs $12 per unit and commodity 2 costs $5 per unit. (1) Write down your budget equation. (2) Suppose the government taxes $2 per unit on commodity 1 and %5 per price on good 2. Write down your new budget equation. Exercise 2 A consumer consumes one consumption good x and hours of leisure h . The price of the consumption good is 1. The consumer earns wage rate s per hour for the first eight hours of work, and s > s for additional overtime hours. He also faces a tax rate per dollar on labor income earned above amount M . Draw the budget set. Exercise 3 (1) Christopher takes ( x 1 ,x 2 ) to be at least as good as ( y 1 ,y 2 ) if and only if x 1 ≥ y 1 and x 2 ≥ y 2 . Show which condition his preferences violate....
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This note was uploaded on 09/21/2008 for the course ECON 420k taught by Professor Clements during the Spring '07 term at University of Texas.
- Spring '07