We want to find the optimal affordable bundle for each of the following utility

Question

We want to find the optimal affordable bundle for each of the following utility functions (with prices and money). In Problem Set #2, you completed this task for only the problems where the three “regularity conditions” were satisfied; in this assignment, you will find the optimal bundle for the other problems, for which some condition failed. For each problem:

(a) If the optimal bundle was found in PS#2, do nothing– the problem is already solved!

(b) If not, briefly discuss the shape of the indifference curves for this problem, and what strategy should be used to find the optimal bundle rather than the tangency method.

(c) Find the optimal bundle using the strategy you described in part b

I already know that neither of these satisfy regularity conditions so another method to find the optimal bundle needs to be used.

1. u(x, y) = 8x 3x2 + 15y 2y2 7000, px = 6, py = 20, m = 5

2. u(x, y, z) = 5x2 + 2y2 + 3z2, px = 4, py = 3, pz = 1, m = 4872

Explanation / Answer

A map is a model constructed by geographers and cartographers. Like an economic

model, it is a simplified representation of reality. Suppose you have a map of your

hometown in front of you. Think of one question about your town that you could

answer using the map. Think of another question about your town for which the map

would be useless.

2. Which of the following questions do you think would be studied by a

macroeconomist and which by a microeconomist? (Note: we don’t expect you to be

able to answer all these questions yet.)

a) What should the European Central Bank do about increasing prices in

Europe?

b) What happens to the price of ice cream in the summer?

c) Should you take out a student loan to pay for college?

d) What happens when the US government cuts taxes and pays for these tax

cuts by borrowing money?

e) What would happen to the prices of computers if Apple and Microsoft

merged into a single firm?

Economics Detective

1. Look at a newspaper on the Internet. Find a news story about macroeconomics. How

do you know that it is about macroeconomics? Find a news story about

microeconomics. How do you know that it is about microeconomics?

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.