section5_1 - Department of Economics University of...

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Unformatted text preview: Department of Economics University of California, Berkeley ECON 100A Spring 2010- Section 5 GSI: Antonio Rosato 1 Consumer Choice 1.1 Example 2, from last section Molly loves hamburgers and soft drinks, but insists on consuming exactly one soft drink for every two hamburgers that she eats. Molly has a budget of 100, the price of soft drinks is $2 and the price of hamburgers is $4. How many hamburgers and soft drinks does Molly consume? 2 Cost of Living Indexes Many government programs use the CPI to approximate the cost of living. For example, under the present Social Security System, a retired person receives an annual benefit that is initially determined at the time of retirement. Then, this benefit increases year to year at a rate equal to the rate of increase of the CPI. Is it appropiate to use the CPI as a cost-of-living index? 2.1 Ideal Cost of Living Index. Pindyck and Rubinfeld, Chap- ter 6, Section 3.6 Rachel and Sarah are sisters with identical preferences. When Sarah went to college in 1999, her parents gave her a budget of $500 per quarter. Sarah used this budget to buy1999, her parents gave her a budget of $500 per quarter....
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This note was uploaded on 03/18/2010 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.

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section5_1 - Department of Economics University of...

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