Econ100A_REVIEW2009_MT2

Econ100A_REVIEW2009_MT2 - REVIEW QUESTIONS MIDTERM 2 1....

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REVIEW QUESTIONS – MIDTERM 2 1. Good 1 is normal, good 2 is normal and the two goods are substitutes (but not perfect substitutes). Using budget lines and indifference curves, illustrate the effect of an increase in p 2 on the consumption of both x 1 and x 2 . Label income and substitution effects for both goods 2. My utility function is U(x 1, x 2 ) = x 1 3 x 2 + 8 and my utility-maximizing bundle (at existing prices and my income) consists of 3 units of x 1 and 2 units of x 2 . If p 1 = 10, what must p 2 equal? 3. Joes demand for good 2 is given by x 1 *(p1,p2, I)=I/(3p 2 ). a. What is his own-price elasticity of demand, E x2 , p2 , for good 2? b. Bonus: What is his own-price elasticity of demand, E x1 , p1 , for good 1? 4. A consumer has preferences over leisure, Le, and disposable income, I. Use budget lines and indifference curves to illustrate the case where a simultaneous halvng of the wage rate and a doubling of non-wage income would have no effect on her optimal choice of disposable income .
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Econ100A_REVIEW2009_MT2 - REVIEW QUESTIONS MIDTERM 2 1....

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