Econ 100A PS1

Econ 100A PS1 - Department of Economics University of...

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Econ 100A-Spring 2010 Page 1 Problem Set 1 Department of Economics Spring 2010 University of California , Berkeley Prof. Woroch Economics 100A PROBLEM SET 1 Due: Thursday, February 4, 2010, 2:00 PM (in lecture) I. TRUE or FALSE and EXPLAIN : For each statement below, decide whether it is true or false, and explain the reasoning behind your answer in a few sentences . When appropriate, provide a diagram. 1) Theresa likes coffee from Starbucks and bagels from Noah's, but only together in specific proportions, and so her marginal rate of substitution between coffee and bagels is constant. 2) Since Jennifer’s income elasticity of demand for potatoes is negative, she violates the assumption of “more is better.” 3) Joaquin buys life insurance but also is known to play the lottery regularly, and so he cannot be an expected utility maximizer. 4) Strong inflation causes prices to triple but because wages respond more slowly, a household’s nominal income only doubles. As long as relative price are unchanged in this case, the household’s optimal consumption choice remains unaffected.
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Econ 100A PS1 - Department of Economics University of...

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