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Unformatted text preview: Problems 1, 2, 3, 4, 5, 7, 10 Additional Problem: 1- Suppose X & Y are 1-2 perfect substitutes, i.e. the consumer’s satisfaction from every unit of X is twice of a unit of Y. Suppose in 2009 , P X = 3, P Y = 2 and the consumer income is $12. In 2010, P X = 2.5, P Y = 1. a) Write down the utility function. b) What is the ideal price index? c) What is the Laspeyres price index? d) Calculate ideal and Laspeyres indices if U(X, Y) = Min (2X, Y) 2- Suppose M1 = 40,000, M2 = 42,000 and r = 0.05 and 5 . 2 5 . 1 2 1 10 ) , ( C C C C U = . a) Write down the equation of the intertemporal budget constraint. b) What is the optimal consumption bundle? Is the consumer a borrower or a saver?...
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This note was uploaded on 02/14/2011 for the course ECON 302 taught by Professor Avrin-rad during the Spring '09 term at University of Illinois, Urbana Champaign.
- Spring '09