Econ302-hw2-summer090 - 1 Econ302 Homework Assignment 2...

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Econ302 Homework Assignment 2 Summer  2009 Due Thursday May 28  (Questions 1, 2, and 3 will be graded) Name: 1. Suppose that the price of gasoline has risen by 50%. What happens to a consumer's level of well- being given he spends some of his income on gasoline? Diagram the impact of the increase in gas prices in a commodity space diagram, and show the relevant indifference curves. Now, if the individual's income rises just enough so that his original consumption bundle exactly exhausts his income, will the individual purchase more or less gasoline (this level of income implies the consumer can afford his original consumption bundle)? Is the individual better-off at the higher price level of gasoline with the higher income level or the original price of gas and income? 1
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2. Consider a consumer with the utility function ( , ) 10 ( , ) U X Y Min X Y = , where Min is the minimum of the two values of X and Y. a.
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This note was uploaded on 06/11/2009 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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Econ302-hw2-summer090 - 1 Econ302 Homework Assignment 2...

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