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Problem Set 1 Spring 2010 - Econ 3377 Spring 2010 Prof...

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Econ 3377 – Spring, 2010 Prof. Scott Imberman Problem Set 1 Due Tuesday, Feb 9 at the beginning of class. Late problem sets will not be accepted and will receive a grade of 0. Each problem set is graded out of 10 points – 5 points on the one graded problem and 5 points based on overall effort on the other problems. To receive full credit you must show all of your math work and provide explanations for essay-type questions. (1) Graded Alex just got a $1000 tax refund from the government. He decides that he will spend the money on CDs and video games. Let C = # of CDs Jonathan buys & G = # of video games he buys. John’s marginal utility from CD’s is 1000 – 20C while his marginal utility from video games is 2000 – 50G. The price of CDs is P C = 20 and the price of video games, P G = 60. Note: you can always assume that a person can buy a fraction of a good unless I specifically state otherwise. (a) Write down and draw Alex’s budget constraint. Make sure you label your axes, write
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