Introduction. In the previous chapter, you found the commodity bundle
that a consumer with a given utility function would choose in a sp eci c
price-income situation. In this chapter, we take this idea a step further.
We nd demand functio
Introduction. In the previous chapter, you learned ab out preferences
and indi erence curves. Here we study another way of describing preferences, the utility function . A utility function that represents a p ersons
x 2 = 20. Therefore we know that the consumer chooses the bundle
( x 1 , x 2 ) = (120 , 20).
Introduction. You have studied budgets, and you have studied prefer-
ences. Now is the time to put these two ideas togethe
Introduction. It is useful to think of a price change as having two dis-
tinct e ects, a substitution e ect and an income e ect. The substitution
e ect of a price change is the change that would have hap
Introduction. You have studied budgets, and you have studied preferences. Now is the time to put these two ideas together and do something with them. In this chapter you study the commodity bundle chosen by a utilit
Problem Set V: Edgeworth Box
1. Consider agents A and B with the utility functions uA (x, y ) = mincfw_x, 4y and
uB (x, y ) = mincfw_x, 2y . Suppose also that agent A has an initial endowment of
(xA , y ) = (30, 10) and agent B has the initial endowment
Introduction. In the previous chapter, you learned about preferences
and indierence curves. Here we study another way of describing preferences, the utility function. A utility function that represents a persons p
Introduction. In the previous section you learned how to use graphs to
show the set of commodity bundles that a consumer can aord. In this section, you learn to put information about the consumers preferen
Intermediate Microeconomics Econ 3101, Section 002 Homework 2-Solutions
Timothy Lim Uy
NOTE: Partial points are only to be awarded if the answers given are incorrect. Question 1. Demand I. Consider the case where there are two goods, x and y, with prices
Introduction. It is useful to think of a price change as having two distinct eects, a substitution eect and an income eect. The substitution eect of a price change is the change that would have h
pap er. Draw an upward-sloping curve passing through the p oint (0 , 4)
and getting steep er as one moves to the right.
When you have completed this workout, we hop e that you will b e
able to do the follo
Problem Set I: Budget Set
1. Eric has 1000 $ to spend on apples and telephone calls. The per unit price of an
apple is pa = 10$ and price per call is pc = 0.5$. Draw the budget set of Eric.
(a) Suppose that the apple store reduces the price of apples to 5
Problem Set II: Preferences & Utility
1. Ayla preferes the bundle (x, y ) to bundle (x , y ) if and only if x.y x .y > 1.
(a) Draw Aylas indierence curve(s) that passes from consumption bundle
(x, y ) = (5, 5).
(b) Show that Aylas strict preference relati
Problem Set III: Choice & Demand
1. State, under which conditions M RS (x, y ) =
(a) Necessary condition for optimal choice.
(b) Sucient condition for optimal choice.
2. Recall Ufuk from the previous problem set with the conditional utility fun
Introduction. These workouts are designed to build your skills in de-
scribing economic situations with graphs and algebra. Budget sets are a
good place to start, b ecause b oth the algebra and the graphing are very