310-1 Spring 2011 PS3

# 310-1 Spring 2011 PS3 - Economics 310-1 1 Text 4.14 2 Text...

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Economics 310-1 Problem Set 3 Spring 2011 1. Text 4.14 2. Text 4.9 3. Suppose that a consumer’s utility function is U(x,y) = ln x + ln y. Let P X = 2, P Y = 1, and I =10. Calculate the consumer’s optimal choice. 4. For Problem 1, derive the Income Consumption Curve (ICC). That is, determine the optimal consumption bundle for arbitrary I. Graph the ICC and show the optimal bundles for three levels of income. Are x and y normal or inferior goods over the range of incomes considered? 5. For Problem 1, you have already calculated the optimal consumption bundle when P X = 2, P Y = 1, and I =10. Hold all of the parameters constant except P Y . Recalculate the optimal bundle for arbitrary P Y . Graph the Price Consumption Curve (PCC) over the range of P Y from 1 to 4. 6. Solve to get the demand curve equation for good Y using the data from #1. 7. Text 5.6 8. Text 5.8 9. Auerbach’s demand for frozen custard is given by P = 20 – 2Q A while that for Kotlikoff is given by P = 40 – 2Q B . Supposing that these are the only two consumers in

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## This note was uploaded on 10/05/2011 for the course ECON 310-1 taught by Professor Schulz during the Spring '08 term at Northwestern.

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310-1 Spring 2011 PS3 - Economics 310-1 1 Text 4.14 2 Text...

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