ECON 204 STUDY QUESTIONS #2 Preferences 1) I like cofee but when I drink more than 2 cups, it makes my stomach a bit upset, so aFter 2 cups, drinking more cofee makes me worse of.The problem gets worse and worse, the more cofee I am Forced to drink (above 2 cups). I don’t have the same problem with cookies. I like them, and could eat them all day and never get tired. (a) Sketch my preFerences For cofee and cookies by drawing two representative IC’s. Show the direction oF increasing preFerence. (b) Are my preFerences convex? (assume that in the region up to 2 cups, my indiference curves get Flatter as my cofee consumption increases). (c) IF I am maximizing my utility, I will always end up consuming exactly two cups oF cofee. Discus the validity oF this statement. 2) Consider the Following utility Functions: 1.U( g G , g ± ) = g G g ± 2. U( g G , g ± ) = g G ± g ± ± 3. U( g G , g ± ) = ln( g G ,) + ln( g ± ) (a) ±ind the utility level that corresponds to the consumption bundle (
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