WeekofJan26

WeekofJan26 - W3211 Spring 2009 Professor Vogel Recitation...

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W3211 Spring 2009 Professor Vogel Recitation for the Week of January 26, 2009 1. Suppose Bob is currently willing to trade 4 movie tickets for 1 basketball ticket. (a) If the above statement is true and he can either use the tickets himself or sell them, then he must like basketball better than movies. True or False? Explain. (b) If the above statement is true and False? Explain. 2. Bob±s utility function is U ( x;y ) = xy , the price of x is $2 , the price of y is $5 , and Bob has $50 to spend. (a) What is Bob±s marginal rate of substitution of x for y (i.e. dy dx j U ) when utility is maximized? (b) Suppose that Bob is consuming a bundle with less x and more y than his utility maximizing bundle. Would his MRS of x for y be greater, equal to, or less than your answer in part a , or are you unable to tell? 3. Suppose that we drop the more-is-better assumption (i.e. we allow people to want to
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WeekofJan26 - W3211 Spring 2009 Professor Vogel Recitation...

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