E100LectureNotes5

E100LectureNotes5 - PROPERTIES OF DEMAND 1/4/2008 1...

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 1/4/2008 1 PROPERTIES OF  DEMAND
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 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
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 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
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 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
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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. Use logic to work these out
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This note was uploaded on 04/10/2008 for the course ECON 100A taught by Professor Babcock during the Spring '07 term at UCSB.

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E100LectureNotes5 - PROPERTIES OF DEMAND 1/4/2008 1...

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