Unformatted text preview: First and Last Name: Section: Net ID: College of Human Ecology
Cornell University, Ithaca, New York
Department of Policy Analysis and Management
PAM 2000 Intermediate Microeconomics
A. Sinan Un¨ r – Spring 2009 Homework 2
Due February 13, 2009 Instructions
This homework is due by 12:20 pm on February 13th. You may turn in your homework any
time before the deadline but no late submissions will be accepted.
Write your answers on separate sheets and staple them securely to this cover sheet before you
turn them in. Questions
1) Suppose Al’s utility function over widgets (x) and all other goods (y) is given by the utility
U(x, y) = 20 x + y.
The associated marginal utilities are
MUx = √
x MUy = 1. Denote by Px the price of widgets and by Py of all other goods. For convenience, normalize
Py = $1/unit so that the price of widgets is expressed relative to the price of everything else.
Suppose Al has an income of I = $300 which he spends on widgets and all other goods.
( a ) Find Al’s choice of how many widgets and how much all other goods to consume when
Px = 1. Label this choice as Bundle A. Sketch Al’s choice on a graph.
( b ) Find Al’s choice of how many widgets and how much all other goods to consume when
Px = 2. Label this choice as Bundle B. Sketch this choice on the same graph. 1 ( c ) Find Al’s choice of how many widgets and how much all other goods to consume when
Px = 4. Label this choice as Bundle C. Sketch this choice on the same graph.
( d ) Find Al’s demand for widgets as a function of prices and income.
( e ) Find Al’s demand for all other goods as a function of prices and income.
( f ) Verify your solutions to parts (1a), (1b) and (1c) using the demand functions you derived. 2 ...
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