198s2009.hw2

198s2009.hw2 - Department of Economics, HKUST ECON 198...

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1 Department of Economics, HKUST ECON 198 MICROECONOMIC THEORY I Semester: Spring 2009 Prof. S. F. Leung Lecture time: Mon & Wed 10:30am - 11:50am E-mail: sfleung@ust.hk Teaching assistant: Peter TSUI (E-mail: ecpeter@ust.hk, Office: 2393) Tutorial hour: Fri 5:00pm-5:50pm Tutorial room: 2502 Homework #2 Due in class on Wednesday, March 25, 2009 1. Snyder and Nicholson, p. 134, Problem 4.9 2. Snyder and Nicholson, p. 176, Problem 5.13 3. Consider the dynamic consumption model on p.18 of the lecture notes. Assume that the utility function is changed to ρ + + = 1 ) , ( 2 1 2 1 c c c c U . (a) Find the optimal c 1 and c 2 . (b) Analyze the effect of a rise in the interest rate on the optimal c 1 and c 2 . Is the result intuitively reasonable? (c) Analyze the effect of a rise in the discount rate on the optimal c 1 and c 2 . Is the result intuitively reasonable? 4. Paul, a novice wine connoisseur, has $5000 to spend on a cheap French wine, F, at $100 per bottle and a quality California varietal wine, C, at $500 per bottle. His preferences for the two wines are represented as U ( C, F ) = CF 1/4 .
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198s2009.hw2 - Department of Economics, HKUST ECON 198...

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