problem set 2

E bill likes hamburgers but neither likes nor

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Unformatted text preview: e eats. (e). Bill likes hamburgers, but neither likes nor dislikes soft drinks. (f ). Mary always gets twice as much as satisfaction from an extra hamburger as she does from an extra soft drink. Exercise 8 Janelle and Brian each plan to spend $20,000 on the styling and gas mileage features of a new car. They can each choose all styling, all gas mileage, or some combination of the two. Janelle does not care at all about styling and wants the best gas mileage possible. Brian likes both equally and wants to spend an equal amount on each. Using indi¤ erence curves and budget lines, illustrate the choice that each person will make. Exercise 9 Suppose that Bridget and Erin spend their incomes on two goods, food (F) and clothing (C). Bridget’ preferences are represented by the utility function U (F; C ) = 10F C , while Erin’ preferences are s s represented by the utility function U (F; C ) = 0:20F 2 C 2 . Do you think Bridget and Erin have the same or di¤ erent preferences? Explain. Exercise 10 Anne has a job that requires her to travel three out of every four weeks. She has an annual travel budget and can travel either by train or by plane. The airline on which she typically ‡ies has a frequenttraveler program that reduces the cost of her tickets according to the number of miles she has ‡own in a given year. When she reaches 25,000 miles, the airline will reduce the price of her tickets by 25 percent for the 1 remainder of the year. When she reaches 50,000 miles, the airline will reduce the price by 50 percent for the remainder of the year. Graph Anne’ budget line, with train miles on the vertical axis and plane miles on the horizontal axis. s Exercise 11 Consumers in Georgia pay twice as much for avocados as they do for peaches. However, avocados and peaches are the same price in California. If consumers in both states maximize utility, will the marginal rate of substitution of peaches for avocados be the same for consumers in both states? If not, which will be higher? Exercise 12 Connie has a monthly income of $200 that she allocates among two...
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This note was uploaded on 01/20/2014 for the course ECON 351 taught by Professor Rahşanakbulut during the Fall '12 term at USC.

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