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penn101_09s_hw2

# penn101_09s_hw2 - Intermediate Microeconomics(Econ 101...

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Intermediate Microeconomics (Econ 101) Spring, 2009 Assignment 2 This assignment is due no later than Tuesday February 17 at the end of class. 1. Workouts 8.7, 8.9, 8.10, 9.15, 14.7, 15.5, 16.12 2. Additional Problems Question 1. If a consumer is endowed with 10 units of good 1 and 15 units of good 2, and her marginal rate of substitution is (in absolute value) 1 3 everywhere, which good will she buy and which good will she sell if good 2 is twice as expensive as good 1? Question 2. A consumer spends her total income, m , on goods x 1 and x 2 with prices p 1 and p 2 respectively. The price p 2 decreases and as a result the consumption of x 1 increases. Therefore: (1) x 1 is a normal good; (2) x 2 is an inferior good; (3) the consumption of x 2 may increase, but the total expenditure on x 2 does not change; (4) the price elasticity of x 2 is less than -1; For each statement, determine whether it is true or false. Justify your answer. Question 3. ”There is a decrease in the tax rate on work. Therefore, people will definitely work more and tax revenue will increase”. Discuss.

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