Econ10A_PSET3

# Econ10A_PSET3 - Problem Set 3 Elasticity 1 Edsel consumes...

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Problem Set 3 Elasticity 1. Edsel consumes 50 bottles of beer per week. His price elasticity of demand for beer 2 . , b p . The price of beer doubles. How many bottles per week doe he consume now? b x E 2. Madonna is spending \$300 per week on eyeliner. Her price elasticity of demand for eyeliner is ( , ee x p E ) is -.1. Suppose the price of eyeliner rises 10%. How much does she spend on eyeliner after the price change? 3. Explain in words what means to say: 2 1 1 , p x E 4. Suppose x 1 =I/(3p 1 ). a. What is the numerical value of 1 1 , p x E when the price of good 1 is \$3? b. What is the numerical value of 2 1 , p x E when the price of good 1 is \$3? 5. Suppose a consumer is currently buying a positive amount of good 1. and her elasticities are . a. Explain in words what this means b. Does this make sense? Why or why not? 11 21 1 ,, , ... 0 n xp EE E  Comparative Statics of Demand 6. Good 1 is a normal good, Good 2 is an inferior good. Using 3 budget lines and 2 indifference curves, illustrate the effect of an increase in p 2

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## This note was uploaded on 03/03/2011 for the course ECON 10a taught by Professor Babcock during the Winter '11 term at UCSB.

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Econ10A_PSET3 - Problem Set 3 Elasticity 1 Edsel consumes...

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