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ec100_winter2010_PS3+AK

# ec100_winter2010_PS3+AK - ECN 100B Winter10 Problem Set3...

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Unformatted text preview: ECN 100B Winter10 Problem Set3 Answer Key by Nikki Yang Q1 a. F C MU MU MRS F C C F U MU C F C F U MU c F C F 1 ) , ( 1 ) , ( b. P F F+P C C=I F+2C=200 Slope of budget line = 2 1 C F P P Slope of indifference curve = -MRS= F C 1 5 . 49 101 200 2 2 2 2 1 1 C F C F C F F C c. P F =1, P C =1 F+C=200 Slope of new budget line=-1 5 . 99 5 . 100 200 1 1 1 C F C F C F F C d. Food and clothing are substitutes. When the price of clothing falls, the quantities of food decrease. ECN 100B Winter10 Problem Set3 Answer Key by Nikki Yang Q2 a. B.C.0: PcC+PsS=I Ps increase, B.C.1: PcC+Ps’S=I Since computer and software are complements, Ps increase, quantity of computer decreases. Substitution effect (1 2): Ps↑, S↓, C↑ Income effect (2 3): Ps↑, I↑, S↓, C↓ Total effect (1 3): S↓, C↓ 1 2 3 Substitution effect Income effect Total effect Computer Software B.C.0 B.C.1 Pc I ' Ps I Ps I ECN 100B Winter10 Problem Set3 Answer Key by Nikki Yang b....
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ec100_winter2010_PS3+AK - ECN 100B Winter10 Problem Set3...

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