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# tutorial_3 - ECOS2001 Tutorial 3 Part A. 1. Define the...

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ECOS2001 Tutorial 3 1 ECOS2001 Tutorial 3 Part A. 1. Define the Slutsky substitution effect and income effect. Using well behaved (convex and monotonically increasing) preferences show each effect on a diagram for a: (i) price fall; and (ii) a price rise. Provide intuition for your diagram 2. Define the price-offer curve and, using a diagram, device both a downward sloping demand curve and a demand curve for a Giffen good. Part B 1. Mary’s utility function is () 2 U b,c =b+100c-c , where b is the number of silver bells in her garden and c is the number of cockle shells. She has 500 square feet in her garden to allocate between silver bells and cockle shells. Silver bells each take up 1 square foot and cockle shells each take up 4 square feet. She gets both kinds of seeds for free. (1) To maximize her utility, given the size of her garden, how many silver bells should she plant? How many cockle shells should she plant? (2) If she suddenly acquires an extra 100 squares feet for her garden, how much

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## This note was uploaded on 02/16/2010 for the course ECOS 2001 taught by Professor None during the One '09 term at University of Sydney.

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tutorial_3 - ECOS2001 Tutorial 3 Part A. 1. Define the...

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