econ 201 - ps1

econ 201 - ps1 - ECONOMICS 201 SPRING 2012 PROBLEM SET 1 1....

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1 ECONOMICS 201 SPRING 2012 PROBLEM SET 1 1. True or false. Given the assumptions that we made on consumer preferences, the consumer will spend all of his or her income. That is, it is not possible that m X P X P * 2 2 * 1 1 . Explain in one or two sentences. 2. Draw the budget line associated with prices ) , ( 2 1 P P and income m . Depict what happens to the budget line if prices double. Depict what happens if prices and income double. What happens to the slope in each case? 3. Suppose that Jack Sparrow, a pirate by nature, likes peg legs and parrots. Along the way to the market, he finds 50 peg legs!! Draw Jack’s budget line if the prices of peg legs and parrots in the market are ) , ( Par Peg P P and his income is m . Hint : Remember that the budget line depicts all of his consumption possibilities, not just what he can purchase at the market. 4. GODZILLA enjoys stepping on people (good 1) and destroying buildings (good 2). His preferences are such that bundle x is strictly preferred to bundle y if 1 1 y x (he always
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This note was uploaded on 02/23/2012 for the course ECON 201 taught by Professor Ninkovic during the Spring '08 term at Emory.

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econ 201 - ps1 - ECONOMICS 201 SPRING 2012 PROBLEM SET 1 1....

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