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Homework #1
due August 8 at noon to Bunche 9372
University of California, Los Angeles
Each question is worth 4 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.
(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.
(c) A student (with preferences that satisfy the axioms of rational choice)
is equally well o/ if he receives $100 in cash each month from his
parents as if his parents subsidize his rent by $100 per month. (
Hint:
draw his budget constraint.
)
(d) Suppose
(
x
1
;y
1
)
is preferred to
(
x
2
;y
2
)
if
x
1
> x
2
or if
x
1
=
x
2
then if
y
1
> y
2
. These are called lexicographic preferences. Lexicographic
preferences satisfy all the axioms of rational choice.
2. De±ne the utility functions and draw the indi/erence curves for each of
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 Summer '08
 cunningham

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