ak1 - Homework #1 Answer Key Econ 11 Summer Session C 2008...

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Homework #1 Answer Key University of California, Los Angeles Each question is worth 5 points, for a total of 20 points. 1. True or False? Why? (a) The economic cost of a vacation is the cost of airfare, food, car rental and hotel. False. The economic cost of a vacation includes the opportunity cost of the vacation, the wage foregone to enjoy it. (b) If an actress (who only cares about acting) has convex preferences over stage and screen performances, she will prefer to take roles both on Broadway and in the movies rather than sign an exclusive contract with Paramount pictures. True. Given that the actress has limited time in which to act and also has convex indi/erence curves, she will obtain a higher level of utility from bundles that include both types of acting than bundles with only one type. (c) A student is equally well o/ if he receives $100 in cash each month from his parents as if his parents pay his rent costing $100 per month. ( Hint: draw his budget constraint. ) False. Assuming that the student has preferences that satisfy the axioms of rational choice, he will be better o/ with a parallel shift of his budget constraint than with a subsidy on the price of one good of the same size. [Answer should contain a graph.] (d) Suppose ( x 1 ;y 1 ) is preferred to
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ak1 - Homework #1 Answer Key Econ 11 Summer Session C 2008...

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