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ECON 204 HW3

# ECON 204 HW3 - ECON 204 STUDY QUESTIONS 3 Utility Demand...

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ECON 204 STUDY QUESTIONS 3 Utility, Demand q.1) Suppose that a consumer’s utility function for g1876 g2869 and g1876 g2870 takes the form: U( g1876 g2869 ,g1876 g2870 )= g1876 g2869 g2869/g2870 g1876 g2870 g2869/g2870 Prices are denoted by g1868 g2869 and g1868 g2870 , and income by m. a) Find the demand functions for g1876 g2869 and g1876 g2870 (as a function of m, g1868 g2869 and g1868 g2870 ). Are g1876 g2869 and g1876 g2870 normal goods? Why? b) Suppose now that the prices are given by g1868 g2869 =2, g1868 g2870 =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( g1876 g2869 ,g1876 g2870 )=2 g1876 g2869 +g1876 g2870 What is my demand for g1876 g2869 for different ranges of g1868 g2869 / g1868 g2870 ? 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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