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Demand Problem Set

ECO

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9 views

Demand Problem Set

ECO

Uploaded by

cs826
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Practice questions: demand

1. Rishi’s utility function is 𝑢(𝑥, 𝑦) = (2𝑙𝑜𝑔𝑥) + 𝑦. Given his current income and relative
prices, he consumes 10 units of x and 15 units of y. If his income doubles, while prices
stay constant, how many units of x will he consume after the change in income?

2. A person’s utility function is 𝑢(𝑥, 𝑦) = 5𝑥𝑦. The prices of goods x and y are 4 per unit
and 2 per unit respectively. Graphically represent the income offer curve on a precise
diagram, and derive the equation for the Engel curve.

3. A consumer has preferences described by utility function 𝑢(𝑥, 𝑦) = √𝑥 + 𝑦. The


consumer’s income is m, while price of good x is p and price of y is q. Derive the inverse
demand function for goods x and y. Graph the Engel curves for goods x and y.

4. Suppose 𝑢(𝑥, 𝑦) = 𝑥 2 + 𝑦 2 + 2𝑥𝑦 and the budget line is given by 2𝑥 + 𝑦 = 𝑚. Derive


and draw the Engel curve.

5. Derive the income offer curves and Engel curves for commodity x for the following utility
functions, assuming 𝑝𝑥 = 𝑝𝑦 = 1.

a. 𝑢(𝑥, 𝑦) = 𝑥 − 𝑦
b. 𝑢(𝑥, 𝑦) = 2𝑥 + 𝑦 2
c. 𝑢(𝑥, 𝑦) = min (2𝑥, 3𝑦)

6. Derive and graph the demand curve for x when 𝑢(𝑥, 𝑦) = 5𝑥 + 3𝑦 and budget line is given
by 𝑝𝑥 + 𝑞𝑦 = 𝑚.

Graded bonus question. TAs are requested not to share the solutions/hints for these questions:

a) Find the equation of the price consumption curve and income offer curve if 𝑢(𝑥, 𝑦) = √𝑥𝑦
and budget line is 𝑝𝑥 + 𝑦 = 𝑚. (1 point)
b) The production function is given by 𝑓(𝑘, 𝑙) = min(2𝑥, 5𝑦). The wage rate and rental rates
are 2/unit for each. Find the long-run total cost function. (2 points) [Yes, we did not cover
this production function in class. The mathematical treatment will be similar to the one done
in consumer theory.]

Note:

If any students are found to have submitted identical/near identical answers, all such students will
receive a zero and be debarred from availing bonus scores.

Clearly write your name and student ID on the answer sheet.

Show all your work in the answer. Clearly mention the equations and the method being used. Partial
credit will be given for the correct approach.
The handwritten answer should be scanned and submitted (in a PDF file) using this form
https://forms.gle/ouRBbBDMgMt3fUez6 using your SNU email ID. The submissions are due by
Saturday, March 9th, 3 pm. Please do not email your answers.

Rules regarding availing the bonus score are mentioned in the course outline.

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