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(solution) 1. Consider a consumer in an economy with two goods, x and y.


1. Consider a consumer in an economy with two goods, x and y. Prices are Px=3 and Py=1. Preferences of this consumer are such that for any possible income and given the prices above, the following is true at any bundle: MUx/Px> MUy/Py
Assume now that the income of this consumer increases by $90. Calculate the change in demand for good x associated with this change in income.


2. Assume an economy with two goods, x and y. A consumer's demand for good x is given by x=M/Px+Py.
Good x and good y are both normal goods. True or False?


3. Consider an economy with two goods x and y. Assume a consumer has preferences u(x,y)=xy.
The consumer's optimal bundle consists of positive amounts of good x and good y. Prices are Px=8 and Py=1. What is the marginal rate of substitution (MRSxy) of this consumer at his or her optimal bundle? No units, no rounding.

 


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