ECO303.02 Recitation 2
1) The price elasticity of gasoline supply in the U.S. is 0.4.
If the price of gasoline
rises by 8%, what is the expected change in the quantity of gasoline supplied in the
U.S.?
A) +3.2%
B) 3.2%
C) +32.0%
D) +0.32%
Answer:
A
2) Jane lives in a dormitory that offers soft drinks and chips for sale in vending
machines.
Her utility function is U = 3SC (where S is the number of soft drinks per
week and C the number of bags of chips per week), so her marginal utility of S is 3C
and her marginal utility of C is 3S.
Soft drinks are priced at $0.50 each, chips $0.25
per bag.
a.
Write an expression for Jane's marginal rate of substitution between soft drinks
and chips.
b.
Use the expression generated in part (a) to determine Jane's optimal mix of soft
drinks and chips.
c.
If Jane has $5.00 per week to spend on chips and soft drinks, how many of each
should she purchase per week?
Answer:
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 Fall '08
 YunShanChan
 Economics, Microeconomics, Price Elasticity, Utility, Neoclassical economics, c. Jane, soft drinks

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