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PS 1 - MICROECONOMICS 100A FALL 2009 PROBLEM SET 1 Tuesday...

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MICROECONOMICS 100A FALL 2009 - PROBLEM SET 1 Tuesday,September15,2009,11:00am(inlecture) TRUEor FALSEandEXPLAIN:For eachstatementbelow, decidewhetheritistrue of false, and explain the reasoning behind your answers in a few sentences. When appropriate,provideadiagram. 1. Today’s auto market and tomorrow’s auto market can be seen as one market. 2. Consider the utility function U ( x , y ) = 2 x + y . The marginal utilities of x and y are both diminishing and the MRS is also diminishing. 3. As one moves upward along a downward-sloping linear demand curve, demand be- comes more elastic. 4. At an optimal bundle it is always true that an individual’s marginal rate of substitution (MRS) between two goods equals the price ratio between the goods (i.e. MRS = P 1 / P 2 ). 5. If both cookies and cake are bads, then the indifference curve will have a negative slope. Multi-partQuestions: Answerallpartsofthefollowingquestions. 1. We have some relevant information for a market: Equilibrium quantity q * = 12.
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