Eco11, Fall 2008
Simon Board
Economics 11: Homework 2
October 19, 2008
Due date:
Tuesday 28th October.
Instructions:
You are required to write up your solution separately and independently, al
though you are encouraged to discuss and work in groups. Please write your name, student ID
number, and the name of your TA on the front page of the assignment that you hand in. Also,
please put boxes around your final answer to each part.
1. Budget Sets with Price Discounts
There are two goods:
x
1
and
x
2
. The seller of
x
2
charges
p
2
= 2. The seller of
x
1
offers price
discounts. If the agent buys
x
1
<
10 she pays
p
1
= 2 for every unit. If the agent buys
x
1
≥
10
she pays
p
1
= 1 for every unit (including the first 10).
(a) Suppose
m
= 30. Draw the agent’s budget set.
(b) Assume the agent has monotone preferences.
Do preferences exist such that the agent
chooses (i)
x
1
= 3, (ii)
x
1
= 7 and (iii)
x
1
= 12? Explain your answers.
2. Intertemporal Choice with Differential Interest Rates
An agent allocates consumption across two periods. Let the consumption in period
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 Fall '08
 cunningham
 Economics, X1, Simon Board

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