ECON 204 STUDY QUESTIONS 3 Utility, Demand q.1)Suppose that a consumer’s utility function for g1876g2869and g1876g2870takes the form: U(g1876g2869,g1876g2870)=g1876g2869g2869/g2870g1876g2870g2869/g2870Prices are denoted by g1868g2869and g1868g2870, and income by m. a) Find the demand functions for g1876g2869and g1876g2870(as a function of m, g1868g2869and g1868g2870). Are g1876g2869and g1876g2870normal goods? Why? b) Suppose now that the prices are given by g1868g2869=2, g1868g2870=1, m=100. What is the optimal consumption bundle? (You can, of course, use the demand functions you found in part a). What is the utility level at the optimal bundle? q.2)Suppose that I have a utility function U(g1876g2869,g1876g2870)=2g1876g2869+g1876g2870What is my demand for g1876g2869for different ranges of g1868g2869/ g1868g2870? Hint: remember that with the linear indifference curves such as this one what the person consumes will depend on whether the indifference curves are steeper than the budget line.
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