{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

penn101_09s_hw5sol

penn101_09s_hw5sol - Intermediate Microeconomics(Econ 101...

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

View Full Document Right Arrow Icon
Intermediate Microeconomics (Econ 101) Spring, 2009 Solutions to Additional Problems in Assignment 5 Solution to Question 1. (1) True. Note that for Brad, the two goods are perfect substitutes. In equilibrium, for Brad to consume both goods, it must be that the price ratio equals his MRS. Let p x = p and p y = 1. Then we must have | MRS B | = 1 7 = p . On the other hand, Ann has quasilinear preferences, and hence her consumption of good y is independent of her endowment. Ann’s demand for y is obtained by solving: | MRS A | = p 1 154 2 y - 1 2 = 1 7 y = 121. (In this problem, we see that sometimes it is possible to determine equilibrium price and consumption without using the aggregate resource constraints. ) (2) True. Using the notation in your textbook (p. 233), here we have σ m = s and x = 1 / 2, so σ 1 / 2 = s/ 2. (3) False. Ann’s utility function is concave. This means she is risk-averse. Since betting $10 on a fair coin toss has an expected winning of 0, Ann would prefer to get 0 for sure, that is, not to take this gamble, than to gamble. (4) False. The battle of sex game would be a counterexample. Solution to Question 2. (1) Let p 2 = p . (a) Step 1: Find out the demand function for one of the goods. Carl’s demand function for good 1 is x 1 C = 1 3 m C ; David’s demand function for good 1 is x 1 D = 1 3 m D ; (b) Step 2: Find out their endowments’ worth: For Carl: m C = 9 + 6 p x 1 C = 1 3 (9 + 6 p ); For David: m
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern