This preview shows page 1. Sign up to view the full content.
Unformatted text preview: ECON – 301
Problem Set 3 1) David has a quasilinear utility function of the form , with associated marginal utility functions and . a. Derive David’s demand curve for as a function of the prices, and . Verify that the demand for is independent of the level of income at an interior optimum. b. Derive David’s demand curve for . Is a normal good? What happens to the demand for as increases? 2) Ginger’s utility function is , with associated marginal utility functions and . She has income and faces prices and . a. Determine Ginger’s optimal basket given the prices and her income. b. If the price of increases to $8 and Ginger’s income is unchanged, what must the price of fall to in order for her to be exactly as well off as before the change in ? ...
View Full
Document
 Spring '11
 Sheng
 Utility

Click to edit the document details