"econ41502-18 - Consumer Theory In Class Review...

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Consumer Theory – In Class Review Exercise Economics 415 Spring 2010 Mary’s preferences over baskets of two goods, good X and good Y, are partially depicted in the graph below: The income Mary has to devote to consumption of goods X and Y equals $1200. The price of good X is current $75/unit and the price of good Y is $300/unit. 1. The relative price of good X in terms of good Y is _______ units of Y per unit of X. 2. Mary maximizes her satisfaction by consuming ______ units of X and _____ units of Y. 3. Suppose the price of good Y falls to $75 per unit. The substitution effect of this fall in the price of good Y equals a change in quantity demanded of Y equal to ______ units. The income effect of this fall in the price of Y equals a change in quantity demanded of Y equal to ______units. The change in quantity demanded of Y brought about by this fall in price equals ______ units. 4. The change in quantity demanded of good X caused by the fall in price of good Y to $75/unit equals ______ units. We can conclude that Mary considers goods X and Y to be ________ goods. 15 5 0 5 Units of X Units of Y 15 10 10
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Ellen’s preferences over baskets of X and Y are “Cobb-Douglas:” U(X,Y) = 64X 1/4 Y
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This note was uploaded on 04/12/2011 for the course ECON 415 taught by Professor Holland during the Spring '09 term at Purdue University-West Lafayette.

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"econ41502-18 - Consumer Theory In Class Review...

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