Econ100A_PSET3

# Econ100A_PSET3 - Problem Set 3 Elasticity 1 Edsel consumes...

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Problem Set 3 Elasticity 1. Edsel consumes 50 bottles of beer per week. His price elasticity of demand for beer . The price of beer doubles. How many bottles per week doe he consume now? 2 . , = b p b x E 2. Madonna is spending \$300 per week on eyeliner. Her price elasticity of demand for eyeliner is ( , ee x p E ) is -.1. Suppose the price of eyeliner rises 10%. How much does she spend on eyeliner after the price change? 3. Explain in words what means to say: 0 1 1 , = p x E 4. Suppose a consumer is currently buying a positive amount of good 1. and her elasticities are . a. Explain in words what this means b. Does this make sense? Why or why not? 11 21 1 ,, , ... 0 n xp EE E == 5. Suppose a consumer chooses between two goods, x 1 and x 2 , and has an income, I . a. Suppose Explain in words what this means. b. Is it possible that . 1 , 1 = I x E 1 and 1 , , 2 1 = = I x I x E E ? Why or why not? Comparative Statics of Demand 6. Good 1 is a normal good, Good 2 is an inferior good. Using 3 budget lines and 2 indifference curves, illustrate the effect of an increase in p 2

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Econ100A_PSET3 - Problem Set 3 Elasticity 1 Edsel consumes...

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