Microeconomics
ECON 100A
Problem Set 6
Due November 2, 2010 (Solutions Posted November 5, 2010)
1.
Let’s get the Hicksian (compensated) demand functions for any CobbDouglas Utility function.
Recall that the
expenditure minimization problem is:
z
p
x
p
z
x
z
x
+
,
min
Subject to
β
α
z
Ax
U
=
a.
What are the first order conditions for this constrained optimization problem
?
b.
Solve for the optimal consumption bundle, X
h
and Z
h
, as a function of
x
p
,
Z
p
, and
U
.
2.
A consumer gets utility from two goods, X and Z.
Suppose the consumer’s income increases and that, in this income
range, X is a normal good and Z is an inferior good.
Using budget lines and indifference curves, illustrate this
consumer’s response to the change in income.
3.
A consumer gets utility from two goods, X and Z.
Using budget lines and indifference curves, draw the optimal
choice for the consumer under a variety of different prices p
X
. Label these prices p
X
A
, p
X
B
, p
X
C
, etc, and the
corresponding quantities q
X
A
, q
X
B
, q
X
C
, etc. Then directly underneath this diagram, draw the consumer’s ordinary
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, indifference curves, demand functions, Hicksian

Click to edit the document details