Cornell University
Economics 3130
Problem Set 1
Due 1/30/09
1. What is Nechyba’s interpretation of what Friedman meant when he said that no one
knows how to make a pencil?
2. What are the three basic insights Nechyba attributes to economics?
3. Compute
f
x
(that is,
∂f
∂x
),
f
y
,
f
xy
(that is,
∂
2
f
∂x∂y
),
f
xx
, and
f
yy
for the following functions:
(a)
f
(
x, y
) = 10
x
1
5
y

1
2
(b)
f
(
x, y
) = 4
e
3
x
ln
(2
y
)
(c)
f
(
x, y
) =
2(2
x

1)
4
y

2
(d)
f
(
x, y
) =
x
3
y
Note that “ln” means natural log.
4. Suppose that there are two goods:
x
1
and
x
2
. How can a budget line shift parallel to
itself without a change in income? How can a budget line rotate clockwise without the
horizontal intercept changing if the money price of
x
2
(the good on the vertical axis)
does not change?
5. Food stamps can be used like cash to purchase government approved categories of food.
It is illegal to buy or sell them.
In reality, there are markets in foods stamps.
The
price of $1 of food stamps is generally about 50 cents. Suppose that a household has
$200 of labor income and receives $100 in food stamps for the government. Suppose
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '06
 MASSON
 Economics, Microeconomics, Euclidean geometry

Click to edit the document details