1.
Assume Bree has the utility function:
u=min{X, Y}.
a)
Graph Bree’s market demand for X.
b)
On this same graph, show the graph for Bree’s Hicksian demand for X at some level of
utility arbitrarily chosen on the indifference curve ICo obtained when the price of X is
Po, given Py and I.
c)
Suppose there is an increase in the price of X from Po to P
1
.
i)
Illustrate the traditional measure of Dupuit change in Bree’s consumer’s surplus.
ii)
Illustrate Bree’s compensating variation for this price increase.
2.
Recall Abe from the last XtraQ with the utility function:
u=y+x
1/2
and assume an interior
solution.
From his demand system, that is, from his X* and Y*, determine the following
expressions in Abe’s Slutsky equations.
That is, using Abe’s X* and Y* find the following:
(Assume all these partials refer to the total or market or Marshallian effect.)
a)
(∂X/∂Px)
M
b)
(∂X/∂Py)
M
c)
(∂Y/∂Px)
M
d)
(∂Y/∂Py)
M
3.
Ralph consumes only two good, X and Y, and has the following utility function:
u(X,Y)=XY.
a)
For prices Px and Py and income I, derive Ralph’s demand functions.
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 Fall '06
 MASSON
 Utility, Ralph, optimal bundle

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