04 Jun Question Econ 302 Homework 2
Question
Econ 302
Homework 2
Read these instructions carefully!
· Carefully answer each of the questions below.
· You need to show your work, not just the final answer
· You can write or type your answers for the questions
· Please put your name and PSU ID number at the top of the 1st page
· You may use as many sheets of paper as you need.
· If you did parts by hand:
o Scan your entire document (including the parts you typed and the parts done by hand)
o Save the file on your computer (.PDF format preferred) and then upload it to the ANGEL dropbox for this homework assignment.
o Merge the separate PDFs into one file using a service such as (PDFMerge!)
o Failure to submit a single file will result in points being deducted
· If you typed everything:
o Save the file on your computer (.doc or .docx format) and then upload it to the ANGEL dropbox for this homework assignment.
o Be sure your assignment is all on one file. Failure to submit a single file will result in points being deducted
1. (24 points) Suppose a consumer has preferences represented by the utility function U(X,Y) = MIN[X,3Y]. Suppose PX = 1 and PY = 2. Draw the Income Consumption Curve for this consumer for income values M = 100, M = 200, and M = 300. Your graph should accurately draw the budget constraints for each income level and specifically label the bundles that the consumer chooses for each income level. Also, for each bundle that the consumer chooses, draw the indifference curve that goes through that bundle. Make sure to label your graph carefully and accurately.
2. (24 points) Suppose a consumer has preferences represented by the utility function U(X,Y) = X2Y Suppose PY = 1, and the consumer has $180 to spend. Draw the Price-Consumption Curve for this consumer for income values PX = 1, PX = 2, and PX = 5. Your graph should accurately draw the budget constraints for each income level and specifically label the bundles that the consumer chooses for each income level. Also, for each bundle that the consumer chooses, draw the indifference curve that goes through that bundle. Make sure to label your graph carefully and accurately.
3. (24 total points) Suppose a consumer’s utility function is given by U(X,Y) = X*Y. Also, the consumer has $720 to spend, and the price of X, PX = 9, and the price of Y, PY = 9.
a) (4 points) How much X and Y should the consumer purchase in order to maximize her utility?
b) (4 points) How much total utility does the consumer receive?
c) (4 points) Now suppose PX decreases to 4. What is the new bundle of X and Y that the consumer will demand?
d) (6 points) How much money would the consumer need in order to have the same utility level after the price change as before the price change?
e) (6 points) Of the total change in the quantity demanded of X, how much is due to the substitution effect and how much is due to the income effect?
4. (16 points) Suppose a consumer has preferences represented by the utility function U(X,Y) = MIN[2X,Y]. Suppose PX = 1 and PY = 2. Sketch the graph of the consumer’s Engel Curve for good X.
5. (12 points) Refer to the following graph:
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Assuming that this consumer has $100 to spend on Juice and Snac
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