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ps2_101_2011

# ps2_101_2011 - Economics 101 Problem Set 2 Due Thursday...

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Economics 101 Problem Set 2 January 19, 2011 George J. Mailath Due Thursday, January 27, 2011 Please indicate your recitation time/number and recitation instructor on your answer. 1. Andrew consumes positive amounts of goods 1 and 2. He thinks that 3 units of good 1 is always a perfect substitute for 1 unit of good 2. Which of the following utility functions represent Andrew’s prefer- ences? (a) U ( x 1 ,x 2 ) = min { x 1 , 3 x 2 } . (b) U ( x 1 ,x 2 ) = 9 x 2 1 + 6 x 1 x 2 + x 2 2 . (c) U ( x 1 ,x 2 ) = 5 x 1 + 15 x 2 + 100. (d) U ( x 1 ,x 2 ) = x 1 + 3 x 2 + 500. 2. Bruce has preferences, ± , that are complete and transitive. Suppose there are four bundles x 1 , x 2 , x 3 , and x 4 , with the property that (a) x 1 ± x 2 , (b) x 3 ± x 4 , and (c) x 1 ² x 3 . How do Bruce’s preferences rank x 2 and x 4 ? 3. Anthony’s utility function for good 1 and good 2 is given as the fol- lowing. Graph his indiﬀerence curves for diﬀerent utility functions in the commodity space, R 2 + , and discuss whether these preferences are

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ps2_101_2011 - Economics 101 Problem Set 2 Due Thursday...

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