{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

E100LectureNotes5

# E100LectureNotes5 - PROPERTIES OF DEMAND 1 Question 1...

This preview shows pages 1–6. Sign up to view the full content.

1/4/2008 1 PROPERTIES OF  DEMAND

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

View Full Document
1/4/2008 2 Question 1 Suppose my prefs over good1 and good 2 exhibit diminishing MRS. Suppose good 1 is twice as expensive (per unit) as good 2. Suppose MRS(x 1 ’, x 2 ’)=3 at some bundle (x 1 ’, x 2 ’). I should consume: More than x 1 units of good 1 Less than x 1 units of good 1 Exactly x 1 units of good 1
1/4/2008 3 Question 2 Economics gives me a headache I can buy Aspirin in single bottles (X S ) or in four- packs (X F ) that contain four bottles Which utility function captures my preferences over these two goods? A. U(x 1 ,x 2 )=x S +4x F B. U(x 1 ,x 2 )=4x S +x F C. U(x 1 ,x 2 )=x S 4 x F 4

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

View Full Document
1/4/2008 4 Question 3 Economics gives me a headache I can buy Aspirin in single bottles (X S ) or in four- packs (X F ) that contain four bottles Which graph characterizes the optimization problem when p S =2 and p F =4 A. B. X S X F X S X F
1/4/2008 5 “Demand” is what we call the solution functions x 1 *(p 1 ,p 2 , I), x 2 *(p 1 ,p 2 , I) of the utility maximization problem: Solution Case 1 Given nice properties, (differentiability, diminishing MRS) solution obtained from Tangency Condition And Budget condition: p 1 x 1 *+p 2 x 2 * =I Review Solution – Case 2 When we do not have nice properties (and we can’t take derivatives) we may get corner solutions.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 22

E100LectureNotes5 - PROPERTIES OF DEMAND 1 Question 1...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online