aps3x313_f08

aps3x313_f08 - Econ 3130.1 - Wissink - Fall 2008 PS#3 XtraQ...

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1) Consider Ville. He has the following (and now very well know) utility function: u = X 1/2 Y 1/2 . Find the equation representing Ville’s Engel Curve for X, where we want an equation for total expenditures on X as a function of income. ANS: From your notes you should know that x D = ½[I/Px]. Make sure you can derive this! Total Expenditure is simply TE = Px●x D so subbing in the equation for x D you get: TE = ½I 2) Suppose that the Jed’s demand for cherries (C) is completely inelastic at the value, C = 500 bushels. From Jed’s indifference curve/budget line diagram prove/demonstrate that for Jed, cherries must be an inferior good. Where would Jed’s HICKSIAN DEMAND curve for cherries at the original level of utility be relative to his MARSHALLIAN DEMAND CURVE for cherries? ANS: See graph and note that for the total effect to be zero, the income and substitution effects must be equal and opposite. That would imply that cherries are inferior . To see this
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This note was uploaded on 10/29/2009 for the course ECON 3130 taught by Professor Masson during the Fall '06 term at Cornell.

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aps3x313_f08 - Econ 3130.1 - Wissink - Fall 2008 PS#3 XtraQ...

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