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Problem 1

Explain why a consumer’s optimal choice is the point at which her budget constraint is tangent to

an indifference curve.

Problem 2

∂U ∂U

(a) Calculate and

∂x ∂y

(b) Evaluate these partial derivatives at x = 1, y = 2.

dy

(d) Calculate for dU = 0 - that is, what is the implied trade-off between x and y holding U

dx

constant?

Problem 4

You have $3,000 to spend on entertainment this year. The price of a day trip (T ) is $40 and the

1 2

price of a pizza and a movie (M ) is $20. Suppose that your utility function is U (T, M ) = T 3 M 3 .

(a) What combination of T and M will you choose?

(b) Suppose that the price of day trips rises to $50. How will this change your decision?

Problem 5

1 2

U (x1 , x2 ) = (x1 − 5) 3 (x2 − 10) 3

The price of good x1 is equal to p1 and the price of good x2 is p2 . The total income of the

individual is given by I.

(b) Calculate the demand for each one of the two goods

(c) Is good x1 a normal or an inferior good? What about good x2 ? Make sure to justify your

answers.

(d) Calculate the elasticity of demand for each one of the two goods.

- Ps# AnswersUploaded bypmaz
- Midterm 2 SolutionsUploaded bypmaz
- Midterm1 SolutionsUploaded bypmaz
- Set Zero HintsUploaded bypmaz
- The First Problem SetUploaded bypmaz
- Hints 4 Problem Set 1Uploaded bypmaz
- Problem Set 1 Answers ecoUploaded bypmaz
- Problem Set 2Uploaded bypmaz
- THe fourth problem setUploaded bypmaz
- Problem set 5 publicUploaded bypmaz
- Intermediate Micro Chapter01_TheMarketUploaded bypmaz

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