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PS3 - Graduate Microeconomics I Problem Set 3 Fall 2010...

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Graduate Microeconomics I Problem Set 3 Fall 2010 - ECARES Prof. Georg Kirchsteiger T.A. Ester Manna 1. You are given the following information about a consumer’s purchases. He consumes only two goods: Year 1 Year 2 Quantity Price Quantity Price Good 1 100 100 120 100 Good 2 100 100 ? 80 Over which range of quantities of good 2 consumed in year 2 would you conclude: (a) That the consumer’s consumption bundle in year 1 is revealed preferred to that in year 2 and WARP is satis fi ed? (b) That the consumer’s consumption bundle in year 2 is revealed preferred to that in year 1 and WARP is satis fi ed? (c) That is behaviour is inconsistent, i.e., in contradiction with the weak axiom? 2. Ginger and Fred are married. Ginger makes all the decisions about how to spend their family income w and divide the purchases. She does this in such a way that she maximizes her utility function subject to the constraint that Fred’s utility is at least equal to a given level u f . This is what Fred would get after divorce. Let x ( p, w )
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