sample answers econ 212 Quiz 3

sample answers econ 212 Quiz 3 - y 1 x = 2 His budget...

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econ 212 Quiz 3 Answer Section 1. TRUE/FALSE 1. ANS: F Not true in the case of boundary solutions. 2. ANS: F Max likes to specialize, i.e. only consume one good. 3. ANS: F MRS=-(y+1)/(x+2). When x and y are doubled the MRS does not stay constant. 4. ANS: T MRS=-y 2 /2xy 5. ANS: F Let MRS=-Price ratio. Solve for y and x. You will find that y is a constant, which means income changes do not cause change in consumption of y. This is a quasi-linear utility function. When his income rises, he spends all of it on x. Refer to Chapter 6 Appendix. 6. ANS: F Corner solution. 7. ANS: T She consumes equal amount of x and y. 8. ANS: F Corner solution, the tangency condition does not apply. 2. PROBLEM 1. ANS: To set his MRS equal to the price ratio, Max sets (
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Unformatted text preview: y + 1)/ x = 2. His budget constraint is 2 x + y = 10. Solve these two equations to find that x = 11/4 and y = 9/2. If his income doubles and prices stay unchanged, his demand for both goods does not double. A quick way to see this is to note that if quantities of both goods doubled, the MRS would not stay the same and hence would not equal the price ratio, which has stayed constant. 2. ANS: 3. ANS: MRS = -(y+4)/(x+1) His marginal rate of substitution at the bundle (0,6) is -10. MRS = - Px/Py = - Px when Py=1 If the price of x is $10 or greater, he will choose that corner where he does not consume any x....
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This note was uploaded on 01/26/2010 for the course ECONOMICS EC212 taught by Professor Yu during the Spring '08 term at Mt. Holyoke.

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sample answers econ 212 Quiz 3 - y 1 x = 2 His budget...

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