Need help-Microeconomics Assignment

Need help-Microeconomics Assignment

Question #1

Suppose you spend your daily income ($100) into two goods: foods and other goods (composite goods), and suppose your preference over these two goods are represented by the following utility function: , where α is a constant number.

Let’s denote foods as x1 (horizontal axis) and other composite goods as x2 (vertical axis).

If foods price is $5 per unit,

  1. Find the optimum consumption bundle (for both goods as a function of α) (3 points)
  2. Find the range for α that could result in interior optimum solution for this problem. (2 points)
  3. Give an example number for α that could result in corner optimum solutions and write down the utility function. (1 point)


Question #2

In this question you are asked to create a utility function and to find the optimum consumption bundle.

  1. Find an example of two perfect complement goods (please do not use the examples we used in the lectures, quizzes, and exams). Try to find your own unique example. (2 points)
  2. Assign a number to the ratio of the two complement goods (for example, when ratio is 1 for tea and sugar, one pack of sugar is used together with one cup of tea), and also assign numbers to the prices of the two goods. (1 point)
  3. Suppose the total budget to be spent for these two goods is $I. Find the optimum consumption basket. (3 points)
  4. Change price of any of the two goods by 10 percent. To consume the same amount of the two goods as before how the other price must change (assuming no change in the income)? (3 points)






Question #3

Use the utility function from the following Cobb-Douglas utility functions:


  1. Assign numbers for Px and Py and total income. (For example, Px=$5, Py=$1, I=100, etc.) (1 point)
  2. Change (increase or decrease) Px by any amount, and find the substitution and income effects of the price change on the consumption of good X. (4 points)




Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: