prblmset3 - Middle East Technical University Department of...

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

View Full Document Right Arrow Icon
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?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/22/2012 for the course ECON 201 taught by Professor Çakmak during the Fall '10 term at Middle East Technical University.

Page1 / 2

prblmset3 - Middle East Technical University Department of...

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

View Full Document Right Arrow Icon
Ask a homework question - tutors are online