hm2 - University of California Berkeley Department of...

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University of California, Berkeley Department of Economics Microeconomics Analysis - Econ 100A Professor: Atanu Dey Homework 2 Due: Monday July 13 st in the first 10 minutes of lecture Name: Section: 101 102 103 104 (circle one) 1. Under what conditions does the income effect reinforce the substitution effect? Under what conditions does it have an offsetting effect? If the income effect more than offsets the substitution effect for a good, what do we call that good? 2. Michelle spends all her money on food and clothing. When the price of clothing decreases, she buys more clothing. a. Does the substitution effect cause her to buy more or less clothing? Explain (if the direction of the effect is ambiguous, say so) b. Does the income effect cause her to buy more or less clothing? Explain (if the direction of the effect is ambiguous, say so) 3. During his first year at school, Ximing buys eight new college textbooks at a cost of $50 each. Used books cost $30 each. When the bookstore announces a 20%
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This note was uploaded on 07/12/2009 for the course ECON 100A taught by Professor Woroch during the Summer '08 term at Berkeley.

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hm2 - University of California Berkeley Department of...

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