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Unformatted text preview: y. c. U(x, y) = ln x + ln y . d. All of these represent the same preferences. EXPLAIN your result in 3-5 sentences. 6. Problem 4.12 on page 135 of the text. 7. Assume x and y are the only two goods a person consumes. If after a rise in p X the quantity demanded of y increases. Evaluate the following as true or false and explain. Support your explanation with a graph. The income effect dominates the substitution effect for good y. 8. Suppose a person's utility of wealth is given by and his or her initial wealth is 10,000. What is the maximum amount he or she would pay for insurance against a 50 percent chance of losing 3,600? 9. Which of the following utility functions would indicate the most (relative) risk averse behavior? a. U(W) = W . b. U(W) = . c. U(W) = ln W . d. U(W) = . 1/ W . EXPLAIN your result in 1-3 sentences. 10. Complete the following sentence IN TERMS OF CHAPTER 7: An option may add value to a transaction because:...
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- Fall '10