198s2009.hw2.key

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

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1 Department of Economics, HKUST ECON 198 Microeconomic Theory I Semester: Spring 2008/09 Tutor: Peter K. Tsui Office number: Room 2393 (ext.7597) Email: ecpeter@ust.hk Office hours: Wed 3:00p.m. – 5:00p.m. Homework #2 (Answer Key) Note: This answer key serves only as guidelines for grading. Giving the same answers as suggested below is no guarantee of full credits. 1. The following answer uses the Lagrangian method. You can use the substitution method instead of the Lagrangian method.
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2 2.
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4 3. (a) ρ + + = 1 ) , ( 2 1 2 1 c c c c U s . t . W r c c = + + 1 2 1 + + + + = ) 1 ( ) 1 ( ) 1 ( * 2 2 1 r W c + + + + = ) 1 ( ) 1 ( ) 1 ( * 2 2 2 r r W c
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5 C 2 IC (1+r)W BL W C 1 (b) 1 c decreases with r obviously. Since 0 ] 1 ) 1 ( 2 )[ 1 ( 2 2 > + + + + = r r W r c ρ 2 c increases with r . Yes, the result is intuitively reasonable. If the consumer consumes 1 c today, he/she cannot earn any interest income from 1 c . And r + 1 1
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This note was uploaded on 04/03/2010 for the course ECON ECON198 taught by Professor Leungsiufai during the Fall '09 term at HKUST.

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

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