Unformatted text preview: would Alice prefer? Using an appropriate diagram, explain thoroughly how you arrived at your answers. (You may assume for simplicity that the price of all other goods equals $1 per unit and the price of housing equals $1 per unit.) 2) Fred Jones lives in Baltimore. His income is $M per month and his utility function for housing (H) and all other goods (G) is: U(H,G)=H 1/3 G 2/3 a) The current prices are P H per unit for housing and P G per unit for all other goods. Derive Marshallian or ordinary demands for housing and all other goods. (Show all of your work.) b) Suppose that, when Fred lives in Baltimore, P H =1 and P G =2 and Fred’s income (M) equals $30000. If Fred is transferred to Boston, P H increases to 8. How much income would Fred’s employer have to pay for Fred to be exactly as well off as he was in Baltimore? Show how you derived your answer....
View Full Document
- Fall '07
- Microeconomics, Federal government of the United States, Alice