Intermediate Microeconomics  Econ101
Assignment 1
This assignment is due no later than Thursday January 29 at the end of class.
1.
Workouts
2.11, 4.10, 5.4, 5.5, 6.12
2.
Additional Problems
Question 1.
Alice consumes only two commodities and she has an income of $100. Assume the price of good 1 is
$4 per unit and the price of good 2 is $5 per unit. The government decides to impose a quantity tax
on good 1. Fortunately, Alice also got a raise. As a consequence, if Alice spends all her income on
good 1, she can buy 30 units of it. She can also buy exactly 25 units of good 1 plus 5 units of good
2 with her new income. Write down the budget constraints and draw both budget sets in a graph.
How much is the quantity tax on good 1? How much is Alice’s raise? Is Alice better off or worse off?
Question 2.
Leonard consumes positive amounts of goods 1 and 2. He thinks that 3 units of good 1 is always
a perfect substitute for 1 unit of good 2.
Which of the following utility functions would NOT
represent Leonard’s preferences?
(1)
U
(
x
1
, x
2
) = min
{
x
1
,
3
x
2
}
(2)
U
(
x
1
, x
2
) = 9
x
2
1
+ 6
x
1
x
2
+
x
2
2
(3)
U
(
x
1
, x
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 '08
 DANNICATAMBAY
 Microeconomics, Utility, Alice

Click to edit the document details