3070 problem set 2 household tastes 10 2iia with x

Info icon This preview shows pages 10–20. Sign up to view the full content.

3070: PROBLEM SET 2: HOUSEHOLD TASTES 10
Image of page 10

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

(2)(ii)(a) With x preset at x=4 : or y U = 4 ¼ y ¼ 0 1 2 3 4 0 1.41 1.68 1.86 2.00 Sketching: 3070: PROBLEM SET 2: HOUSEHOLD TASTES 11
Image of page 11
3070: PROBLEM SET 2: HOUSEHOLD TASTES 12
Image of page 12

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

(2)(ii)(b) The curve is upwards sloping or the marginal utility of x is always positive . The curve gets flatter as y increases from 0 to 2, but above y = 2 the curve seems pretty flat. However, using the numbers calculated above, we can calculate the marginal utility as the increase in utility if an additional unit of y is obtained as : y U Marginal utility 0 1 2 3 4 0 1.41 1.68 1.86 2.00 , 1.41 , .27 , .18 , .14 From the table, the marginal utility is always decreasing. 2(iii) 3070: PROBLEM SET 2: HOUSEHOLD TASTES 13
Image of page 13
(3) (i) Using algebra: provided x > 0 and y > 0 and . Or the marginal utility of x and y is always positive. Considering the second derivatives: ; or the marginal utility of x decreases as x increases. Similarly, ; or the marginal utility of y decreases as y increases. 3070: PROBLEM SET 2: HOUSEHOLD TASTES 14
Image of page 14

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

(4) 3070: PROBLEM SET 2: HOUSEHOLD TASTES 15
Image of page 15
(5)(i) Indifference curves are lines of constant utility. For the indifference curve corresponding to , , or or x y 0 1 2 3 4 5 6 7 8 4 1 .5 .33 .25 .20 .16 .14 .12 For the indifference curve corresponding to , , or or x y 0 1 2 3 4 5 6 7 8 4 16 8 5.33 4 3.2 2.66 2.28 2.00 3070: PROBLEM SET 2: HOUSEHOLD TASTES 16
Image of page 16

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

Hence: 3070: PROBLEM SET 2: HOUSEHOLD TASTES 17
Image of page 17
3070: PROBLEM SET 2: HOUSEHOLD TASTES 18
Image of page 18

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

5(ii) Yes, the individual’s indifference curves are bowed into the origin. 5(iii) Marginal willingness to pay = marginal rate of substitution = slope of indifference curve. Wiggle the ruler around until it seems to touch the curve at x = 5, y = 3.2. At x = 5, y = 3.2, I measure the slope of the indifference curve as .681.
Image of page 19
Image of page 20
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '14
  • Utility, Marginal rate of substitution, HOUSEHOLD TASTES

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern