Schure tests06ans

# E identify a complementary good of charcoal briquets

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(e) Identify a complementary good of charcoal briquets. Draw what could be the demand curve for this complementary good and show in your graph how the tax on charcoal briquets affects demand for your complementary good. ANSWER: <end of quiz>

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2 (a) Write down the consumer's problem that Elizabeth solves in case the price of raspberries is 1 = r p . Explain in words what it says. A: a r a r 4 / 1 , max Subject to 50 2 + r a In words: Elizabeth maximizes her utility by choosing r and a subject to her budget restriction [and taking the price for a and r as well as her budget given]. Note: Students must work with the actual utility function, not with the generic form. (b) Derive Elizabeth’s optimum bundle in case the price of raspberries is 1 = r p . Two conditions must hold: “slope condition” and budget line: a r a r r p MU p MU r r a a 2 1 1 4 1 2 4 / 3 4 / 1 = = = 50 2 = + r a Combining delivers: 2.5a=50, so a=20, so r=10. The optimum bundle is (a,r)=(20,10) (c) (1) Derive Elizabeth’s individual demand function for raspberries. (2) Is the law of demand satisfied for Elizabeth’s individual demand function? (why or why not?)

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