W3211 Spring 2009
Professor Vogel
Homework #2: Due February 10, 2009
°
Please write your name on the top of
every page
of your homework (in case they get
separated) and please staple all pages together.
°
Where appropriate, you must show all work. If you just give an answer without work,
you don°t receive credit (on a mathematical question, of course).
1. Bob°s utility function is
U
(
x; y
)
. Mary°s utility function is
F
(
U
(
x; y
))
, where
F
is a
continuous, strictly increasing function. Suppose that Bob°s income is
$10
and that he
faces prices
p
x
= $2
and
p
y
= $7
. On the other hand, Mary°s income is
$30
and she
faces prices
p
x
= $6
and
p
y
= $21
. If Bob°s utility maximizing bundle is
(
x
°
; y
°
)
, can
you say anything about Mary°s utility maximizing bundle?
2. Bob°s utility function is
V
(
x; y
)
, the price of
x
is
$2
, the price of
y
is
$5
, Bob has
$50
to spend, and Bob°s utility maximizing bundle is an interior bundle (i.e.
x >
0
; y >
0
).
Now suppose that price of
x
increases to
$4
, the price of
y
increases to
$10
, and Bob
has
$100
to spend. Can you say if Bob°s new utility maximizing bundle contains more
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 Spring '08
 Govel
 Supply And Demand

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