Assignment 1 [Theory of Consumer Behaviour]
Assignment 1 [Theory of Consumer Behaviour]
August 1, 2019
Please write all the steps neatly in your submission and draw well labelled graphs. Sub-
missions after the deadline will not be graded.
Explain which market basket(s) is(are) preferred to other(s), and if there is any uncer-
tainty over which is preferable, point this out as well.
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2. Suppose River Song's utility function U(x,y) is xy .
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(b) Does she believe more is better for each good?
(d) Suppose the price of good x is Rs. 2 and price of good y is Re. 1, and her income
is Rs. 10. What is her optimal basket of goods x and y ?
, where PX represents price in rupees per unit, Q represents sales in kgs per week, and
PY represents selling price of another product Y in rupees per unit. The inverse supply
PX = 5 + 0.004Q (2)
4. The demand for tickets to a T-20 cricket match in Holkar Stadium at Indore is given by
the equation QD = 3, 50, 000 − 800P . The supply of tickets to the match is given by the
capacity of the stadium, which is 1,50,000.
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Bonus question
5. Some texts dene a `luxury good' as a good for which the income elasticity of demand is
greater than 1. Suppose that a consumer purchases only two goods. Can both goods be
luxury goods? Explain.