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Unformatted text preview: ECON – 301
Problem Set 3 1) David has a quasi-linear 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 ? ...
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- Spring '11