# PS1 - University of Illinois FIN 501 Financial Economics...

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University of Illinois Professor Miller FIN 501, Financial Economics Fall, 2010 Problem Set #1 Due Wednesday, September 2 (Late problem sets will NOT be accepted) 1. The article “High gas prices cut driving for 8 th month: government” (Reuters, Aug. 13, 2008; http://www.reuters.com/article/idUSN1333749120080813 ) discusses changes in quantity of gasoline demanded by consumers in response to rapidly rising prices. Consider a representative individual who receives utility from units of food (F) and gasoline (G). The individual’s utility function is U(F,G) = F G. a. Graph the indifference curve associated with this utility function when U(F,G) = 4000. Specifically, for each of the following values of F: 20, 40, 60, 80, 100 and 200, solve for the corresponding value of G that would keep the consumer on the U=4000 indifference curve. (Results may include fractional amounts.) Plot these points and connect them with a smoothed line. Please label all axes clearly. (You may prefer to do this with a spreadsheet program).

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## This note was uploaded on 01/18/2011 for the course FIN fin580 taught by Professor Miller during the Spring '10 term at University of Illinois, Urbana Champaign.

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PS1 - University of Illinois FIN 501 Financial Economics...

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