Microeconomics I .tw



Microeconomics I

Homework#2 Answer Key

Fall 2009

I. Multiple choice question

|1 |2 |3 |

|$10 | 3 | 7 |

|15 | 6 | 9 |

|20 |10 |10 |

(c) What is the income elasticity of hot dogs for this consumer as income increases from $10 to $15?

Ans:

4. a. See Figure 4.2

b. See Figures 4.3 and 4.4

c. ξ ’ (3/5)(10/3) ’ 2

[pic]

Figure 4.2

[pic]

Figure 4.3

[pic]

Figure 4.4

3)(Ch4 Q27,28)

Ryan has a constant elasticity of substitution (CES) utility function U=q1ρ+ q2ρ. (a)Derive his Engel curve. (b)Derive Ryan’s demand curve for q1 and q2.

Ans:

(a)

The tangency condition is

[pic]

which implies

[pic]

Substituting into the budget constraint:

[pic]

(b)

[pic]

so

[pic]

and by symmetry:

[pic]

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