310-1 Spring 2011 PS2-1

310-1 Spring 2011 PS2-1 - Economics 310-1 Problem Set 2...

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Economics 310-1 Problem Set 2 Spring 2011 1. Jessica likes apples but doesn’t care one way or the other about pears. If apples and pears are the only two goods available, draw her indifference curves. 2. Satch likes food but dislikes smoke. The more food he has, the more he would be willing to give up to achieve a given reduction in cigarette smoke. If food and cigarette smoke are the only commodities, draw Satch’s indifference curves. 3. The utility that Tori obtains by consuming gyros (G) and candy (C) is given by U(G,C) = GC + G; i.e., U(G,C) = G(C+1). Gyros cost $2 per unit and candy costs $1 per unit. Tori’s income is $22. a) Tori is currently spending all of her income. She buys 8 gyros. How many units of candy is she consuming? b) Graph the budget line she faces. Place gyros on the vertical axis and candy on the horizontal axis. Plot her current consumption bundle. c) Draw the indifference curve associated with the utility level of 36 and another indifference curve associated with the utility level of 72. Are the indifference curves convex? d) Solve for Tori’s optimal bundle. 4. For each of the following utility functions U(x,y), calculate MU x , MU x , MRS x,y and show whether the indifference curves are convex to the origin or exhibit some other shape. a) U = x
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310-1 Spring 2011 PS2-1 - Economics 310-1 Problem Set 2...

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