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Unformatted text preview: Ryan Oprea Econ 200, Fall 2009 Homework #2 This homework is due on November 3 at the beginning of class. You may consult with others on the homework, but must turn in your own work (i.e. please dont copy homework from others) and must list who you worked with on the homework. If there is insufficient information to answer a question, state a reasonable assumption that allows you to do so and use it when working through the problem. 1. You manage a department whose mission involves two quantitities, x 1 (say expenditures on safety) and x 2 (say expenditures on eduction). Preferences are strictly monotonic and convex, and current con- sumption (expenditure levels in millions of dollars) is ( x 1 ,x 2 ) = (12 , 36). You may assume preferences are homothetic to make things simple. (a) The department is eligible for a g = 10 grant for x 1 from the federal antidrug czar. Compare your optimal consumption here to that for an unrestricted lump sum increase to your budget of 10....
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- Fall '09