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Unformatted text preview: goods ( y ) is $1 per unit. (a) For each price p x for gasoline, how much will Della buy? (b) How much gasoline will Della buy if p x = 2? What is her marginal rate of substitution of other goods for gasoline at this point? Is it greater or less than the price? Give an economic intuition for this result. (c) How much gasoline will Della buy if p x = 3? What is her marginal rate of substitution of other goods for gasoline at this point? Is it greater or less than the price? Give an economic intuition for this result. (d) Suppose that the price of gasoline is p x = 2, but that a black market in gasoline opens up, where she can buy additional quantities (above 40 gallons) for $3 a gallon (while continuing to buy the ration of 40 gallons at the legal price of $2). How much gasoline will she buy on the black market? 1...
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This note was uploaded on 10/13/2008 for the course ECO 310 taught by Professor Stephene.morris during the Fall '08 term at Princeton.
 Fall '08
 StephenE.Morris
 Utility

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