Problem Set 4.pdf - Intermediate Microeconomics Homework...

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Intermediate Microeconomics Homework Set 4: Demand and Revealed Preferences Not Due Exercise 1 Marie’s utility function is u ( x 1 , x 2 ) = min { 3 x 1 +2 x 2 , 2 x 1 +5 x 2 } , where x 1 is the number of units of sugar she consumes and x 2 is the number of units of spice she consumes. She is currently consuming 12 units of sugar and 40 units of spice and she is spending all of her income. (1) Draw a graph showing her indifference curve through this point. (2) The price of spice is $1. In order for this to be her consumption bundle, what must the price of sugar be and what must be her income? Exercise 2 A consumer consumes three types of commodities. An economist observed the choices of this consumer in three different days. The following data shows the market prices p 1 , p 2 , p 3 of the commodities and the corresponding quantities x 1 , x 2 , x 3 of the commodities chosen by the consumer. p 1 p 2 p 3 x 1 x 2 x 3 Day 1 2 3 3 3 1 7 Day 2 3 2 3 7 3 1 Day 3 3 3 2 1 7 3 Show that this data satisfies the WARP but violates the SARP.

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