{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# 300hw1answer - b Because one unit of tea provides more...

This preview shows pages 1–2. Sign up to view the full content.

ECO 300 Hunter College Answer Key for Homework 1 2.3 To graph the indifference curves, use 2 U instead of U . U = 10 means 2 100 U C D = = . Hence, indifference curves are hyperbolas. a. b. See graph. c. D=10, 10 0 0 U = = d. If, say, spent half of income on D, half on C, would buy D=5, C=20. Utility would be 5 20 10 U = = which is less than 20. Trial and error shows that any other budgetary allocation provides even less utility than this. e. As in part d, Paul can buy 20 C and utility will be 10. f. Any other allocation yields less utility (see graph). 2.5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
a. The indifference curves here are straight lines with slope -4/3. Hence, the MRS is a constant 4/3. The goods are perfect substitutes
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: b. Because one unit of tea provides more utility than a unit of coffee, she will spend all of her income on tea when the prices are equal: T = 4, C = 0 . c. The graph shows that the indifference curves are steeper than the budget constraint, so maximum occurs on the T axis. d. With more income she would continue to buy only tea. If coffee prices fall to \$2, coffee is now a cheaper way to obtain utility – one unit of coffee yields 3 units of utility at a cost of \$2 so utility costs \$2/3 per unit of utility. With tea, utility costs \$3/4 per unit of utility....
View Full Document

{[ snackBarMessage ]}