# PS3Answers - UCLA Economics 11 Fall 2010 Professor Mazzocco...

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

UCLA Economics 11 – Fall 2010 Professor Mazzocco Problem Set 3 Due by October 14 before 9:00am in the box located outside room 2221E, Bunche Hall 1) Suppose that an individual with income I cares about two goods, X and Y. The price of the two goods is P x and P Y . The individual has the following utility function: U(X,Y) = X (1 + Y) a) Find the Marshallian (uncompensated) demand for X and Y. Are X and Y normal or inferior goods? b) Find the Hicksian (compensated) demand for X and Y. c) What is the minimum expenditure necessary to achieve a utility level of U= 72 with Px=4 and P Y =2? a) L(x,y, λ ) = X(1+Y) + λ [I- P x x – P z y] L X = 1 + Y - λP x = 0 (1) L Y = X – λP y = 0 (2) L λ = I- P x x – P y y = 0 (3) With equations (1) and (2) we get: P X /P y = (1+Y)/X (4) X * =(I+P Y )/2 p x , Y * =(I-P Y )/ 2p y and both are normal goods. b) L(x,y, λ ) = P x x + P y y + λ [U- X – XY] L X = Px – λ(1+Y) = 0 (1) L Y = Py – λ(X) = 0 (2) L λ = U- X – XY = 0 (3) With equations (1) and (2) we get: P X /P y = (1+Y)/X (4)

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.

## This note was uploaded on 11/09/2011 for the course ECON 11 taught by Professor Cunningham during the Fall '08 term at UCLA.

### Page1 / 3

PS3Answers - UCLA Economics 11 Fall 2010 Professor Mazzocco...

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

View Full Document
Ask a homework question - tutors are online