Problem Set 1 - 5. Besanko, 2.9, p. 66. 6. Besanko, 3.1, p....

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University of California at Berkeley Economics Department Economics 100 Problem Set 1 Short Answers 1. Besanko 1.1, p. 19 2. Given the utility function ) , ( 2 1 x x U U = , demonstrate that the . 2 1 MU MU MRS - = 3. How will a change in income effect the location of the budget line? 4. How will an increase in the relative price of good 1 change the budget line? 5. How will an increase in the relative price of good 2 change the budget line? 6. What is the income elasticity of demand for a normal good? 7. What is the income elasticity of demand for an inferior good? Long Answers 1. Besanko, 1.5, p. 19. 2. Besanko, 1.6, p. 19. 3. Besanko, 2.1, p. 65. 4. Besanko, 2.3, p. 65.
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Unformatted text preview: 5. Besanko, 2.9, p. 66. 6. Besanko, 3.1, p. 94. 7. Given the Adam Duritz utility function between CDs (C) and hard candy (H) is 2 1 2 1 H C CH U = = , a. Sketch Adams indifference curve for U=5, U=10 and U=20. b. Suppose Adam has $200 to spend and that CDs cost $5 and hard candy cost $20. Draw Adams budget constraint on the same graph as his indifference curves. c. Suppose Adam spends all his money on hard candy. How many can he buy and what is his utility? d. If Adam buys 5 hard candies, how many CDs can be buy? What is his utility? 8. Besanko, 5.1, p. 180....
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