10HW2 - c. Suppose initially p 1 = $8, p 2 = $2, and I =...

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Economics 104A Problem Set #2 (Due Feb 3) Winter 2010 1. A consumer spends all his money on good 1 and good 2. The consumer’s utility function is: u ( x 1 ,x 2 ) = min { 4 x 1 , 2 x 1 + x 2 } . The price of good 1 is p 1 = 10, the price of good 2 is p 2 = 5, and the consumer’s income is m = 200. (a) Find the consumer’s optimal bundle. (b) Graph the consumer’s indifference curve passing through the optimal bundle you found in part (a). 2. Let u ( x 1 ,x 2 ) = x 1 + 2 x 2 be the utility function of a consumer. a. Find the demand functions for good 1 and good 2. b. Show that good 1 and good 2 are ordinary.
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Unformatted text preview: c. Suppose initially p 1 = $8, p 2 = $2, and I = $800. Find the corresponding optimal bundle. 3. John buys 10 new college textbooks during his rst year at school at a cost of $80 each. Used books cost only $45 each. When the bookstore announces that there will be a 12% increase in new texts and a 8% increase in used texts for the next year, Johns father oers him $80 extra. Is John better o or worse o after the price change? Support you answer. 1...
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