Econ 301 – F06
PROBLEM SET 3
 due in class on Monday October 2
Wissink
1.
For changes in Px, diagrammatically show what the price consumption curve looks like for the
following utility functions:
u(x,y) = xy;
u(x,y) = x + y;
u(x,y) = min{x,y}.
2.
For changes in I, diagrammatically show what the income consumption curve looks like for the
following utility functions: u(x,y) = xy;
u(x,y) = x + y;
u(x,y) = min{x,y}.
3.
For changes in Px, diagrammatically show the income and substitution effects
ala’ Hicks
for the
following utility functions:
u(x,y) = xy;
u(x,y) = x + y;
u(x,y) = min{x,y}.
4.
Derive the demand functions for x & y for the utility function:
u(x,y) = y + bln(x).
5.
Initially a consumer with money income of $100 chooses between goods x and y (there are no other
goods) which have prices Px and Py both equal to $2.00. The person is buying 30 units of x and 20 units
of y.
a.
Graph the initial equilibrium.
b.
Now suppose that prices change so that Px = $3.00 and Py = .50. What is the cost of the original
bundle at the new set of prices? Is the original bundle affordable?
c.
Explain fully the consumer's final equilibrium position under the new set of prices and show it on
your graph.
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 Fall '07
 WISSINK
 Microeconomics, Utility, Robinson Crusoe, following utility functions, min{x,y}.

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