Web Problem Set 03 - RP, Labour-Leisure, Two-Period

# Web Problem Set 03 - RP, Labour-Leisure, Two-Period - 1...

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1 ECONOMICS 200 WEB PROBLEM SET #3 CONSUMER THEORY: RP, LABOUR-LEISURE, TWO-PERIOD Relates to Lecture Assignments #7, #8, #9. From the BB Text, End of Chapter Problems 4.19 Two-Period [BB3, 4.16] 4.30 (Revealed Preference) [BB3, 4.27] 5.29 Labour-Leisure [BB3, 5.27] Additional Questions 1. In Year 1, Samantha Student exhausts her income by consuming certain quantities of X and Y (all this Point 1). In Year 2, the price of X falls and her income falls too, such that she cannot buy Point 1. Can you conclude that she is worse off in Year 2? Use Revealed Preference Theory and an indifference diagram in your answer. 2. Here are some data on the prices and quantities of two goods consumed by an individual across two years: Year P 1 P 2 X 1 X 2 2009 10 15 20 10 2010 8 20 30 9 a) Compute the Laspeyres and Paasche Quantity Indices; indicate what you can determine from each of them regarding whether the individual is better off in 2010. b) Compute the Income Index and compute the Laspeyres and Paasche Price Indices; indicate what you can determine from each of them regarding whether the individual is better off in 2010.

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