Econ_102A_PS1_Answer

Econ_102A_PS1_Answer - Thus, if everything becomes twice as...

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Econ 102A Problem Set 1 Solutions #1) a) Budget Constraint: Px*X+Py*Y=M Budget Set: { (X,Y) | Px*X+Py*Y≤M } Note that I and M are the same. e) Lets look at the budget constraint. Suppose we double all prices and income. Then the budget constraint becomes: 2Px*X+2Py*Y=2*I = 2 (Px*X+Py*Y)=2*M The factors of 2 cancel each other out on both sides to yield = Px*X+Py*y=I which is the unchanged budget constraint.
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Unformatted text preview: Thus, if everything becomes twice as expensive but you are given twice as much spending money as before, you are essentially just as well off if prices had never doubled in the first place. #2) Price of a CD is Pcd = $16; Price of book is Pb = $8; Income is M = $80 a) b) c) d) e)...
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This note was uploaded on 02/03/2010 for the course ECON econ102a taught by Professor Bandy during the Winter '09 term at UC Riverside.

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Econ_102A_PS1_Answer - Thus, if everything becomes twice as...

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