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ps1_09

# ps1_09 - Cornell University Economics 3130 Problem Set 1...

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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

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ps1_09 - Cornell University Economics 3130 Problem Set 1...

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