# prblmset3 - Middle East Technical University Department of...

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

Middle East Technical University Spring 2011 Department of Economics ECON 201 Erol Çakmak TA: Osman Değer PROBLEM SET 3 1. A consumer has a utility function u(x 1 ,x 2 ) = x 1 α x 2 1- α a. Will consumer ever consume only x 1 or only x 2 ? b. Taking prices as p 1 and p 2 , and income as M, find what fraction of the income of the consumer will be spent on good 2. c. Derive the Marshallian demands of both goods. d. What is λ? What does it mean? e. Derive the income expansion path. f. Derive the Engel curve for both goods. g. Derive the price consumption curve for good 1. 2. A consumer derives utility from consuming x 1 and x 2 . His utility function is u(x 1 ,x 2 ) = 8 . Suppose he wants to have exactly u= . Given P 1 = 20 and P 2 = 15, a. Formulate the dual constrained expenditure minimization problem. b. Determine the optimum quantities of x 1 and x 2 . While doing so, derive the Hicksian demands of both goods. c. What is his minimum expenditure while receiving ? d. What is μ and what does it show?

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.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern