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# Review1 - REVIEW PROBLEMS 1 Tom Dick and Harry the only...

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REVIEW PROBLEMS 1. Tom, Dick, and Harry, the only three people on a desert island with two consumption goods, apples and bananas, have utility functions U T , U D, and U H , respectively, where: U T (x a , x b )=6x a +9x b U D (x a , x b )=8x a +12x b U H (x a , x b )= x a x b 2 a.) Relative to Tom, does Dick require more bananas, less bananas, or the same number of bananas to give away an apple? Why? b) Suppose Harry has 3 apples and 2 bananas. Would he be willing trade an apple for a banana? Show why or why not. 2. A consumer facing prices and income (p 1 , p 2 , I) = (6,3,24) comes back from the market having chosen (x 1 * , x 2 * ) = (3,2). You then offer to make a trade with him. You offer him 3 units of good 2 if he will give you 1 unit of good 1. Would the consumer accept this offer? Explain and prove why or why not. (Assume the consumer cannot go back to the market to adjust his purchase.) 3. Suppose a consumer only buys 2 commodities, good 1 and good 2. Suppose now that p 1 doubles and p

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## This note was uploaded on 01/29/2010 for the course ECON 100A taught by Professor Babcock during the Winter '07 term at UCSB.

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Review1 - REVIEW PROBLEMS 1 Tom Dick and Harry the only...

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