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AGEC2005 Assignment1

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7 views

AGEC2005 Assignment1

Uploaded by

chantingwai80
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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AGEC2005 Microeconomics

Homework 1

Instructions: You can either handwrite or type the homework. If you decide to type, be
sure to use the correct specification for equations. For example, the price of an apple should
be pa instead of pa. All homework should be uploaded on NTUCool in PDF format, and
late submission is not accepted.

Question 1 [Market Equilibrium] Suppose that the demand curve for renting the
apartments is D(p) = 120 − 2p.

a. What price would the monopolist set if they had 70 apartments? What is the total
revenue received by the monopolist? Please show the revenue area in a diagram.

b. What price would the monopolist set if they had 50 apartments? What is the total
revenue received by the monopolist? Please show the revenue area in a diagram.

c. Suppose there are 50 apartments in the market. How many apartments will be rented
when the price ceiling is $15? Will there be excess supply or excess demand? How
much excess supply or demand will there be?

Question 2 [Budget Constraint] Gary is a beverage lover. He has $100 to spend on


Coke ($6 /bottle) and Pepsi ($5 /bottle), which for him are perfect substitutes. In addition,
he has 10 coupons to get Coke for the price of $4 /bottle.

a. What is the budget constraint and utility function for Gary?

b. How much Coke and Pepsi would Gary buy?

c. Show the indifference curve and budget constraint on a diagram.

d. What happens when the government implements an ad valorem tax on both Coke and
Pepsi for $0.5 per bottle, how much would Gary buy?

Question 3 [Preferences and Utility] In each of the following examples, a consumer


purchases just two goods: x and y. Based on the information in each of the following
parts, sketch a plausible set of indifference curves (that is, draw two curves on a set of
labeled axes, and indicate the direction of higher utility). Also, write down a utility
function u(x, y) consistent with your graph. Note that although all these preferences
should be assumed to be complete and transitive (as required for utility representation), not
all will be monotone.

1
a. Harry loves meat x, but he hates vegetables y.

b. Hermione always buys two pairs of white socks x for every pair of boots y.

c. Ron likes both peanut butter x and jelly y, and always gets the same additional satis-
faction from an ounce of peanut butter as he does from two ounces of jelly.

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