{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Microeconomic Theory II Pb1

Microeconomic Theory II Pb1 - Microeconomic Theory II...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Microeconomic Theory II Problem Set 1 Question 1 The legendary 007 James Bond’s favorite drink is Vodka Martini and he likes it “shaken, not stirred”. This is made by 2 shots of vodka and 4 shots of dry martini, then shaking it with ice in the cocktail shaker till it is iced cold. It is served without ice (“or straight up”). Suppose the vodka costs $4 per shot and dry martini costs $2 per shot. Mr. Bond’s allowance from M16 is $200. (a) Write down Mr. Bond’s utility function (b) Find the Marshallian demands for vodka and for martini for Mr.Bond. (c) If the price of dry martini drops to $1, calculate and graph the Marshallian demand for dry martini. (d) From (c), calculate the Slutsky substitution effect and income effect. (e) Draw a diagram to show your answers in (d) and graph the Slutsky demand for dry martini. (f) From (c), calculate the Hicks substitution effect and income effect (g) Draw a diagram to show your answers in (f) and graph the Hicksian demand for dry martini (h) Comment on your results in (d) and (f)
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern