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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 Spring '09
 ızakatiyas
 Economics, Utility, linear indifference curves

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