# ECON201PSet3Answers - W ELLESLEY COLLEGE DEPARTMENT O F E...

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WELLESLEY COLLEGE DEPARTMENT OF ECONOMICS ECONOMICS 201-03 JOHNSON Answers to Problem Set #3 1. Use your "preferred" method for finding X* and Y*. I have done the Lagrangian for you below! I ' ~ -'1 M\):; ----r-J' '> ~ j (f)\)'1 ~ i > ~ l"\. - \, X X '3> . 1 S \ '\ \ ~ ~ r'f\ \J{\\.~\S'f\\ t- t..~1 \ \ . '\ . 1, S '''J \ ~ \J ~ , 'f ,RS '1- 'I:;' , '! 3 -- --=- ) 0\[\\<\ Y'f\ \ \$''f\Q5 v .... ~. A , y... S~~\~~ C",,'lt)( b. ~" ~XLI~ t'f -t A [1- 'P~'k"?'1~1 "0 't- \ ~ \) ~ ~ -=) \:. ~ I . ::: -,' I~ - J\' ~ '0\ j\)< '0 -x. "f. \ ~~ \ - "A'? "'~ ~ A" -r o \1 ~"'\ '1 o't -' ~ ;: ?x 113 h~ 1-\\'J-:-~,\"\ - Q '1- ~ '1'1.3 _ ~~~j I~~ ~~7~ ?- "?" F ()'(' ~ > I~\ Cl~ 1- '/ ~ 3 ~'" ~." \( ~i-) 'I- - ~~~', X ~ -; r. /f x f''j. 2 - ''1~~~ f1

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-- J. y A ~ )<~ '\ ~~~1.~. S·~· 1~' r\.~' ~ '\ t X "- l' tt ~ ~, 'I "- ~"- "'" \" X \ Re~ ·In<-. ct D Y1 f~ Vi -r.£. ~"X- ~ .'. ~ " 5, •\ V\ \' ~ ,,:\ t) '( R" t- -- ~ A & 's ,.f. ~ ~ ?)( l 1_ ~ __ ~ ~ ~~y\ S,{, b~("'~C~S I. E. ""' - e l\t - X o Y)l f' x 3. a. Because Larry consumes LESS cofTei as his income rises, cofTee is an INFERIOR good to Larry. b. See diagram below. Essentially, the "chart" is optional, although for full credit your diagram MUST show that Y consumption unambiguously rises and X consumption unambiguously falls.

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