penn101_09s_hw1sol

# penn101_09s_hw1sol - Intermediate Microeconomics(Econ101...

This preview shows pages 1–2. Sign up to view the full content.

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.

Unformatted text preview: Intermediate Microeconomics (Econ101) Spring, 2009 Solutions to Additional Problems in Assignment 1 Solution to Question 1. First budget constraint: 4 x 1 + 5 x 2 ≤ 100 . Second budget constraint: The new budget line passes through two points: (30 , 0) and (25 , 5), thus it is the line x 1 + x 2 = 30. The budget set is: x 1 + x 2 ≤ 30. The new price ratio is 1, i.e., p 1 + t = p 2 , or 4 + t = 5. Therefore the quantity tax on good 1 is \$1. Alice’s new income is 5 * 30 = 150, which means she got a raise of \$50. The new budget constraint is: 5 x 1 + 5 x 2 ≤ 150. Note the new budget set is a super set of the old budget set. Since after the tax and the raise, Alice still can afford every combination of good 1 and 2 that she could afford before, she is better off. Solution to Question 2. A utility function that represents Leonard’s preferences is: u ( x 1 ,x 2 ) = x 1 + 3 x 2 . Since (3) and (4) are monotonic transformation of the above utility function, (adding/subtracting constants, taking square roots,) they represent Leonard’s preferences as well.constants, taking square roots,) they represent Leonard’s preferences as well....
View Full Document

## This note was uploaded on 09/27/2009 for the course ECON 101 taught by Professor Dannicatambay during the Spring '08 term at UPenn.

### Page1 / 3

penn101_09s_hw1sol - Intermediate Microeconomics(Econ101...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online