hw2 - Homework #2 due August 18 in class Econ 11 Summer...

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Homework #2 due August 18 in class University of California, Los Angeles Each question is worth 5 points, for a total of 20 points. 1. Jessica spends all her income on books for school and cigarettes. The utility she derives from these goods is described by the function U ( b; c ) = 3 ln b + ln c . (a) Use the Lagrangian method to derive Jessica±s monthly demand func- tions for books and cigarettes. If cigarettes cost $5 per pack and books cost $50 each, while Jessica±s mother gives her $200 a month for expenses, how many books and cigarettes will Jessica choose to purchase? (b) Suppose the government wants to decrease Jessica±s consumption of cigarettes by half? How much should the government tax cigarettes? (c) Suppose Jessica±s mother wants to decrease Jessica±s consumption of cigarettes by half? By how much should her mother reduce her income? (d) Suppose Jessica±s mother wants to keep Jessica±s consumption of books the same, while reducing her consumption of cigarettes. By
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This note was uploaded on 09/23/2008 for the course ECON 11 taught by Professor Cunningham during the Summer '08 term at UCLA.

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hw2 - Homework #2 due August 18 in class Econ 11 Summer...

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