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Problem Set 1 - CA - Micro

This document outlines 7 questions for a problem set on consumer theory. Question 1 asks about properties of utility functions like completeness and transitivity. Question 2 asks to find marginal rate of substitution and indifference curves. Later questions ask to find optimal consumption points given utility functions, prices, and incomes, draw related graphs, and analyze effects of price changes. The problem set will require handwritten answers and graphical analysis of consumer choice topics including indifference curves, budget constraints, and effects of price changes.

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24 views

Problem Set 1 - CA - Micro

This document outlines 7 questions for a problem set on consumer theory. Question 1 asks about properties of utility functions like completeness and transitivity. Question 2 asks to find marginal rate of substitution and indifference curves. Later questions ask to find optimal consumption points given utility functions, prices, and incomes, draw related graphs, and analyze effects of price changes. The problem set will require handwritten answers and graphical analysis of consumer choice topics including indifference curves, budget constraints, and effects of price changes.

Uploaded by

Double Vision
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem Set 1- Consumer Theory

Marks: 20 (As a part of Continuous Assessment)

Q.1 Consider that Eric’s utility function is u(x, y)=2x+3y,. Show that this utility function
satisfies completeness, transitivity, monotonicity and strict monotonicity. consider one of
Eric’s friends, John, who has a utility function u(x, y)=min{2x, 3y}.show that the utility
function satisfies all the properties except for strict monotonicity.

Q.2 Eric’s utility function is u(x, y)=x1/3 + ¼ y. Find his MRS and depict his indifference
curve for utility levels u=20.

Q.3 U(x.y) =3y-2x . Draw graph. Find out the optimal point if M= 200, Px =5 Py= 2.
Which type of good X is?

Q.5 Assume that a consumer has the utility function u(x, y)=xy+7x, faces market prices
px=$1 and py =$2, and an income I =$10. Find out optimal points and Draw graph.

Q.5 Find out the i) optimal demand of X and Y and Draw IC & Budget line.
ii) Draw Income offer curve and Engel curve (also find the equation of Engel curve)
iii) Draw the Price offer curve and demand curve.

for the following Parts-

A) Chelsea has utility function u(x, y)=x1/2 y1/4, facing prices px =$3 and py =$2, and
income I =$16. Draw graph

B) Eric’s utility function is u(x, y)=3x+4y and faces prices px =$1 and py =$2.5 and
income I =$23. Comparing his MRSx,y and the price ratio, find his optimal
consumption of goods x and y. Draw graph.

C) John has a monthly income of I =$400 and a utility function of the type
u(x, y)=min{2x, y}. The price of good x is $3, while the price of good y is $4.
Find John’s equilibrium quantities for goods x and y.

Q.4 Consider a utility function u (x, y)= x y, income I =$100, and a price for good y of py
=$1. The price of good x decreases from px =$3 to p_x=$2. find the total effect and
decompose into SE and IE. Draw Graph.

Q.5. Consider a utility function u (x, y)= lnx+ y, income I =$100, and a price for good y of
py =10. The price of good x decreases from px =5 to px=$2. find the total effect and
decompose into SE and IE. Interpret your results intuitively. Draw Graph.
Q.6 U(x,y) = X2+ Y2. . M= 400 Px= 20 , Py= 25. Find out the optimal point. Draw graph.
Find out SE and IE if Py falls to 16.
Q.7 Decompose SE and IE in case of Perfect substitutes, Quasilinear, and Complements
graphically.

Reference: Dunaway and AMG Note: It should be Handwritten.

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