This preview shows page 1. Sign up to view the full content.
Problem Set #1
Econ 420K
Budget Sets
S.
Bronars
1.
You have $100 in income.
The price of X
1
is $10, the price of X
2
is $5.
a.
Illustrate your budget set
b.
Suppose P
1
doubles; illustrate your new budget set.
c.
Suppose, instead, that P
2
doubles,
Illustrate your new budget set.
d.
Suppose, instead, that both P
1
and P
2
double; illustrate your new budget set.
2.
In Cuba the official price of gasoline is 10 cents per gallon, but it is rationed so that
the typical consumer gets only 10 gallons per month at this price.
The black market
price is $3 per gallon.
Illustrate the typical customer's budget constraint, where I is
total income and P is the price of goods other than gasoline.
Remember you can buy
or sell gasoline on the black market.
3.
Geraldo has 30 hours a week to spend either reading books or watching T.V.
It takes
Geraldo 1 hour to watch a T.V. show, and 6 hours to read a book.
a.
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 09/15/2009 for the course ECON 420 K taught by Professor Bronars during the Fall '09 term at University of Texas.
 Fall '09
 Bronars

Click to edit the document details