Microeconomics
ECON 100A
Problem Set 4 Solutions [THIS MATERIAL IS NOT ON THE MIDTERM]
Due October 20, 2010 (Solutions Posted October 22, 2010)
1.
Now, let’s see if you can do the general perfect complements problem.
Matt gets utility from X and
Z.
Matt always consumes
α
X with
β
Z.
a.
What type of utility function represents Matt’s preferences?
Write down an expression for
Matt’s utility.
b.
What is Matt’s utility maximizing combination of X*(P
x
, P
z
, Y) and Z*(P
x
, P
z
, Y)?
c.
What is the Matt’s indirect utility function,
i.e., V(P
x
, P
z
, Y)=U(X*(P
x
, P
z
, Y), Z*(P
x
, P
z
, Y))?
d.
Show that Roy’s identity holds for good x.
e.
What share of his budget does Matt spend on X*?
What share of his budget does Matt spend
on Z*?
(Note: check that these two shares sum to one.)
2.
Now, let’s see if you can do the general perfect substitutes problem.
Toni gets utility from X and Z.
Toni thinks that
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.
 Fall '08
 ZAMBRANO
 Microeconomics, Utility, Toni

Click to edit the document details