mirco3 - her happiness by ܷሺܯ ܴ ൌ ܯ ൈ ܴ where...

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Economics 201.002 Spring 2012 Homework 3 Due: Thursday February 16, 2012 All answers must be well written, neat, and have a clear explanation to receive full credit. 1) Zoë has a utility function of U(x,y) = 2x + 3y and a budget of $450. The price of good y is $1.50. Derive Zoë’s demand curve for good x. 2) Caitriona has $36 to divide between beer and vodka. A bottle of beer costs $2.00, and a shot of vodka costs $3.00. At Caitriona’s best choice, the marginal rate of substitution for vodka in terms of beer is 0.5 bottles/shot. How much Vodka does Caitriona consume? (You may find a diagram to be helpful.) 3) Filbert is indifferent between baskets (3,2) and (4,1). Lychee is indifferent between baskets (1,4) and (2,3). Their indifference curves have the usual shape. If Filbert’s best bundle is (1,4), and Lychee’s best bundle is (4,1), can they be paying the same prices? 4) Christie likes only two things: redwood trees and properly made martinis. She measures
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Unformatted text preview: her happiness by ܷሺܯ, ܴሻ ൌ ܯ ൈ ܴ , where M represents the number of martinis and R represents the number of Redwood trees that she can see from her backyard. A properly made martini consists of 1 ounce of gin and 2 ounces of vermouth. If she has excess gin or vermouth it is thrown away. The price of gin is $2 per ounce, and the price of vermouth is also $2 per ounce. Christie currently has $36. There are 3 redwood trees within sight of Christie's backyard. She pays nothing to see these and cannot buy more. The local city council is considering a plan to build a new highway. To build the highway, one redwood tree must be cut down. a) If the council decides to build the highway, how much money will they have to pay Christie if they are to make her as well off as she was before the new road? b) How much is Christie willing to pay to stop the council from building the highway?...
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This note was uploaded on 03/29/2012 for the course ECON 201 taught by Professor Ninkovic during the Spring '08 term at Emory.

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