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Unformatted text preview: the food stamps, respectively. Label your diagram completely. b. When the price of a good, say good 1, is $5 per unit, Jack consumes 1,000 units. The price rises to $5.50, and to oﬀset the harm to Jack, the government gives him a cash transfer of $500. Use IC’s and budget lines to determine whether Jack is better oﬀ or worse oﬀ after the price rise plus the cash transfer. Label your diagram completely. 3. a. Let u ( x 1 ,x 2 ) = ln( x 1 + x 2 ) be a utility function for a consumer. Are the two goods perfect substitutes? Explain why or why not. Draw the IC with utility level 0. b. Let u ( x 1 ,x 2 ) = √ x 1 x 2 be a utility function for a consumer and let m = $200 be the consumer’s income. Is bundle X = (16 , 12) aﬀordable at prices p 1 = $5, p 2 = $10, and is it optimal? Why or why not? 1...
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This note was uploaded on 08/27/2011 for the course ECON 104 taught by Professor Staff during the Winter '10 term at UCSB.
- Winter '10