Macro & Micro economics

Project description
answer all the questions in hw2.pdf. use the materials of this textbook: Microeconomics: Theory and Applications, with Calculus, by Jeffrey M Perloff, 3rd Ed. to answer the questions.


Winter 2016

Homework      2

(Due    on        Tuesday,          January            2016,   at         the       beginning        of         class)

Q1.                  Consider          the       following         utility   functions

(a) u(q1,           q2)=     (q1)2/5(q2)3/5

(b) u(q1,          q2)=     5q1+2q2

(c) u(q1,           q2)=min{3q1,  2q2}

(d) u(q1,          q2)=(q1)1/2+   q2

For       (a),       (b),       (c),       (d)       do        the       following

(i)Draw            an        indifference     map     (draw   the       general shape   of         the       IC,       draw            multiple           ICs

and      show    the       direction          of         increase           of         utility).

For       (a),       (b)        and      (d),      do        the       following

(ii)        Calculate         marginal          utilities for       good    1          and      good    2.         Are      these            marginal          utilities


(iii)       Calculate        MRS.  Verify whether          or        not      the      absolute          value   of        the            MRS

decreases         as         we       move   down   the       IC.

For       (a),       (b),       (c),       (d)

(iv)       Derive demand           functions         for            goods  1          and      2          (solve   for       optimal            q1 and q2).

Q2.      Consider          the       equation          of         the       budget line

p1q1    +p2q2  =Y

(a) Draw          the      budget            set,      and     label    the      intercepts        with    the      values.            What   is         the

slope    of         the       budget line?

(b) What          happens          to        the      budget            line     if         p1 goes           up       while  p2 and      Y        remain

unchanged?     Show   it          on        the       graph.

Q3.      Draw  the      indifference    curve  for      someone         who    have    complete         and     transitive

preferences,     but       one      good    is          a          ‘good’ (more   is          better), but       the       other one            is          ‘neutral’ (

the       consumer         does     not       care      how     much   of         it          she       has,      it          does     not            effect   her       utility).

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