Review
1/4/2008
1
MRSandMarginalUtility
u ( x, y ) MUx(x,y)= : How much utility you get form one x
more unit of x. Depends on x,y and utility function dy MRS(x,y)= dx u =u
If you gave up a unit of x, how much y you would need to be has happy as before Rel
Problem Set 3 Comparative Statics of Demand 1. Good 1 is a normal good, Good 2 is an inferior good. Using 3 budget lines and 2 indifference curves, illustrate the effect of an increase in p2 on the consumption of both x1 and x2. Label income and subs
Econ 100A/Summer 09
Discussion #2
1.
Miss Muffet insists on consuming 1 unit of whey per 1 unit of curds. If the price of curds is $5 and the price of whey is $3, then if Miss Muffet's income is $m, her demand for curds will be (a) m/5. (b) 3m/5. (c) 5c+3
Econ 100A/Summer 09
Discussion #3 1. Henry has a utility function u (c1 , c 2 ) mincfw_c1 , c 2 . If he had an income of $600 in period 1 and $1,400 in period 2 and if the interest rate were 0.20, how much would Henry choose to spend on consumption in pe
Chapter 2
True-False
Topic: Budget Constraint Correct Responses: 90 Correct Answer: False
Budget Constraint
Di culty: 1 Discrimination Index: 10
2.1 If there are two goods with positive prices and the price of one good is reduced, while income
and
Decomposingpricechanges
p2 Pick initial optimum A Draw new budget line Draw parallel budget line Pick point B Draw indif curve through A and B (This gives sub effect) Figure out where to put C
X2
A B
X1
1/4/2008 1
Question1
p2 Good 2 inferior Where
Econ 100A - Problem Set 1 I. Math Review
dy ? dx y 2. y = zx3/4 + z ln d. What is the expression for ? x y 3. y = 7k ln( x ). What is the expression for ? x dy x 4. E y ,x = . Let y=2x2. What is the expression for Ey,x? dx y
1. y = 5x 2 / 3 + 7x + 2 . Wha
DEMAND
1/4/2008
1
WhatisDEMAND?
DEMAND is what we call the solution functions x1*(p1,p2, I), x2*(p1,p2, I) of the utility maximization problem:
max x1 , x2 u ( x1 , x2 ) s.t. p1 x1 + p2 x2 = I
1/4/2008 2
Review:
max u(x1, x2) x1,x2. s.t. p1x1 + p2x2 = I U
Econ 100A - Problem Set 2 Utility Maximization and Demand 1. Georges utility is given by U(x1, x2) = 6x1*x22. Use calculus to work through the utility maximization problem and derive his demand functions x1(p1, p2, I) and x2(p1, p2, I). 2. Teds demand fun
Problem Set 3 Elasticity 1. Edsel consumes 50 bottles of beer per week. His price elasticity of demand for beer E xb , pb = .2 . The price of beer doubles. How many bottles per week doe he consume now? 2. Madonna is spending $300 per week on eyeliner. Her
REVIEW PROBLEMS 1. Tom, Dick, and Harry, the only three people on a desert island with two consumption goods, apples and bananas, have utility functions UT , UD, and UH, respectively, where: UT(xa, xb)=6xa+9xb UD(xa, xb)=8xa+12xb UH(xa, xb)= xaxb2 a.) Rel
Review
1/4/2008
1
MRSandMarginalUtility
u ( x, y ) MUx(x,y)= : How much utility you get form one x
more unit of x. Depends on x,y and utility function dy MRS(x,y)= dx u =u
If you gave up a unit of x, how much y you would need to be has happy as before Rel
PREFERENCES
1/4/2008
1
WhatarePreferences?
We assume individuals have preferences. Preferences over what?
Consumption bundles, not individual commodities Examples ( means is preferred to)
1 apple and 1 orange 2 apples 2 apples now 2 apples tomorrow We
Review
1/4/2008
1
Question1:IfMPLisfalling,thensoisAPL
MPL
APL
L
A. True B. False C. Cant tell
2
1/4/2008
Question2:AfirmsproductionfunctionisF(L,K)=LK.It currentlyuses6unitsofLand3ofK.Whichwouldgiveit moreadditionalproduction:
A. 1 unit of labor (L)
Review
1/4/2008
1
Question1
p2 Good 1, Good 2 complements Where is the optimum consumption bundle after the price change?
X2
1. C1 2. C2 3. C3 4. C4
A C1 C2 C3 C4 B
X1
2
1/4/2008
Question2
p2 Good 1, Good 2 complements Good 1 is:
X2
1. Normal 2. I
Review
Short Run Cost
1/4/2008
1
Question1
The wage is $2/hr and rental rate on capital is $1/hr. Based on the figure on the right, what is the short run total cost of producing 24 units of output in the short-run, given 7 units fixed capital?
K
7 Q=24 Q=
Review
For Midterm 1
1/4/2008
1
AnnouncementsforExamWeek
Review Session: Chem1179, Sat. 10:30-12:00noon
1/4/2008
2
Question
Are you here?
A. Yes B. No C. Yes, but I wish I were in Acapulco
1/4/2008
3
Preferences
Defined over bundles: (x1, x2) (x1, x2)
DEMAND
1/4/2008
1
WhatisDEMAND?
DEMAND is what we call the solution functions x1*(p1,p2, I), x2*(p1,p2, I) of the utility maximization problem:
max x1 , x2 u ( x1 , x2 ) s.t. p1 x1 + p2 x2 = I
1/4/2008 2
Review:
max u(x1, x2) x1,x2. s.t. p1x1 + p2x2 = I U
Review
1/4/2008
1
Question1
Initially, the person below is:
c2
I2 A
C
A. Saver B. Borrower C. Cant Tell
B I1 c1
1/4/2008
2
Question2 The figure depicts what happens when r.
c2
I2 A B I1
C
c1
A. Rises B. Falls C. Cant Tell
3
1/4/2008
Question3
The subs
Review
1/4/2008
1
Question1:IfMPLisfalling,thensoisAPL
MPL
APL
L
A. True B. False C. Cant tell
2
1/4/2008
Question2:AfirmsproductionfunctionisF(L,K)=LK.It currentlyuses6unitsofLand3ofK.Whichwouldgiveit moreadditionalproduction:
A. 1 unit of labor (L)
ExtraO.H.(andReviewSession)before Midterm2
REVIEW SESSION FOR MIDTERM 2: CHEM 1179, Sat. 11/14/09, 12:00P-2:00P Extra O.H posted on Webpage You can attend any T.A.s O.H. No Wednesday section on Vets Day
Students with Wednesday section may attend other
ProfitMaximizationand Supply
1/4/2008
1
AssumptionsPerfectlyCompetitive Market:
Homogeneous commodity Large number of firms:
(Each firm assumes its actions have no effect on market price)
Free entry in long run Perfect information
Prices known by all
Review
Profit Max
1/4/2008
1
ProfitMaximizationAlgebraically
Maximize Total Revenue minus Total Cost max PQ-LTC(Q,w,r) Q FOC: Q* solves:
P = LTC(Q, w, r)/Q
(P=LMC(Q*,w,r)
Solution function is Q*(P,w,r)
1/4/2008
2
Wheredocostcurveshapescomefrom?
Even
Elasticity
x1=a-bp1 Ex1,p1=
x1 p1 p1 x1 = -bp1/(a-bp1)
P1
This is just an example, (for linear demand). It is not a formula for elasticity of demand in general.
X1
1/4/2008 1
Substitutes
E x1 , p2 > 0, E x2 , p1 > 0
In other words,
p1
p1x2 p2x1
X2
I/
ECONOMICS100A
Winter 2010
1/4/2008
1
CourseInformation
Webpage:
http:/www.econ.ucsb.edu/~babcock/econ100a/Econ100Aw10.html
Download syllabus, lectures, problems sets. Check announcements! Lectures - Course is based mainly on lectures and problem sets Go
PREFERENCES
1/4/2008
1
WhatarePreferences?
We assume individuals have preferences. Preferences over what?
Consumption bundles, not individual commodities Examples ( means is preferred to)
1 apple and 1 orange 2 apples 2 apples now 2 apples tomorrow We