Problem Set 6

# Problem Set 6 - up to have the same level of utility as if...

This preview shows pages 1–2. Sign up to view the full content.

UCLA Economics 11 – Fall 2010 Professor Mazzocco Problem Set 6 Due by November 12 before 9:00am in the box located outside room 2221E, Bunche Hall Question 1) Ms Ramirez has the following utility function: U(x,y)= ln(x)+ln(y) Her total income is equal to I and she faces prices Px for good x and Py for good y. a) Calculate the Marshallian demands and Hicksian demands. b) Find the expenditure function. c) Suppose Px=10, Py=1 and I=22. If Px increases by 1%, what is the percentage change in the Marshallian demand functions for the goods x and y? What is the percentage change in the Hicksian demand functions for the goods x and y? (Hint: compute the elasticities) d) Are x and y gross substitutes? Are they net substitutes? e) How much additional income is necessary in order to compensate Ms Ramirez for the price change? (Hint: use the compensating variation) f) Suppose that the price didn’t change. What is amount of income that Ms Ramirez has to give

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: up to have the same level of utility as if the price had changed? Question 2) Mr Macleod likes to drink wine. He has the option to consume two different products, 1 liter of red wine (X) or 1.6 liters of white wine (Y). X and Y are perfect substitutes. Each liter of wine gives Mr Macleod 1 unit of utility. a) Write Mr Macleod utility function. b) Suppose that Px=5. Calculate the Marshallian demand for Y. Draw a graph for this demand (Y as function of Py). c) Now suppose that initially Px=5 and Py=10. But then the price of y changes to \$7. Calculate the total change in demand for y. Explain your result. Question 3) The preferences of an individual are represented by the following utility function: U(x,y)= ln(x)+ 2y a) Determine if x and y are gross substitutes or gross complements. b) Determine if x and y are net substitutes or net complements....
View Full Document

{[ snackBarMessage ]}

### Page1 / 2

Problem Set 6 - up to have the same level of utility as if...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online