Unformatted text preview: lope of the Engel curve is the inverse of → . A8) What is the income elasticity for housing at the optimum? Using the Engel curve, what is
the income elasticity of housing at income = $60,000. At Y = $60,000; H=(60,000/15) = 4,000.
In fact, the income elasticity is always 1 because of the CobbDouglas form. To see this,
insert the reduced form for H into the elasticity formula, B. The annualized price of housing in San Francisco is about $40 per square foot. The price of
food is about the same as in Des Moines. Suppose the economist is considering a job offer from
San Francisco that offers the same annual salary as in Des Moines.
B1) Set up the Lagrangian for the optimal choice of housing and food consumption in San
Francisco. Derive the new optimum values for food F and housing H.
, ,
→ Combining the first two firstorder conditions, we have
Plugging into the budget constraint, we have
→ , Inserting the value for F into the budget constraint, we have
, , → →
, , ∗ . B2) Compute the utility at the optimum in San Francisco. Whi...
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This lab report was uploaded on 04/06/2014 for the course ECON 301 taught by Professor Corinnelanginier during the Fall '07 term at Iowa State.
 Fall '07
 CORINNELANGINIER

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