Problem Set 4 Economics 100, Winter 2010 Due February 2, 2010, 9 AM 1. Consider a single consumer with the following utility function for two goods, A and B. U(A,B) = 4A-0.2 B-0.6 , and an income of I=$1200. The price of good A is fixed at $1. a. Write an expression for this consumer’s demand curve for good B. b. Suppose the market for good B consists of 2000 identical consumers with the utility function given above. Half of these consumers have I=$1200, and the other half have I=$2400. Find an expression for the market demand curve. (Hint: the demand functions you get will imply positive consumption of B for both types of consumers at any positive prices. This means you do not have to worry about negative quantities of B). c. Find the elasticity of demand for each type of consumer at a price for B of $20. 2. You own a company that sells its product in a perfectly competitive market and would like to predict your sales next year. You do not know the demand curve for your product and do not wish to hire an economist to estimate one for you.
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This note was uploaded on 01/16/2011 for the course ECN 100A taught by Professor Parman during the Winter '09 term at UC Davis.