Saint Marys University Seven Economics Questions

1. [1 points] Happy Loman with BC1 will select A. Then, the price of X drops and the price of Y increases, this creates BC2. Given these choices, Happy chooses B. (revealed preference question). What can we say about Happy’s preferences?

1. [3 points] Walter “Teach” Cole, like two goods: Guns (G) and Hammers (H). His utility function is Cobb-Douglas and can be represented in the following manner:

U(G,H)=G12H12 , and

MUG=12G−12H12 , MUH=12G12H−12

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He has $10 in his pockets and guns cost $2 while Hammers cost $0.50.

1. Find MRSG,H and the price ratio
2. Find the optimal bundle
3. Illustrate the budget contraint and the Indiference curves for the optimal choice.

1. [3 points] Donny Dubrow like two goods: Beer(B) and Potatos (P). His utility function can be represented in the following manner:

U(B,P)=min{3B,12P}undefined

Donny has $12 in his pockets and a Beer cost $2 and potatoes cost $0.25.

1. Find the Euler equation. Why can’t we find MRS?
2. Find the optimal bundle
3. Illustrate the budget contraint and the Indiference curves for the optimal choice.

1. [3 points] Bobby like two goods: Coins (C) and telephones (T). His utility function can be represented in the following manner:

U(C,T)=2C+T, and

MUC=2 , MUT=1

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Bobby has $20 in his pockets and a coin cost $0.10 and a telephone cost $5.

1. Find MRSG,H and the price ratio, or provide an alternative way to find how bobby makes a choice.
2. Find the optimal bundle
3. Illustrate the budget contraint and the Indiference curves for the optimal choice.

1. [3 points] A policy maker needs to make a choice. He only has 1 goods to distribute. During the COVID19 outbreak, some towns ran out of food. The policy make has the last piece of food for the day but there are two individual which want it. Someone who is poor (low income) and someone rich (high income). The policy maker does not know what to do and the two waiting for the food start talking to him:

Listen, I’m rich! I took the economic class and my willingness to pay is really high (my demand)! Which means that I will have the most consumer surplus between me and the poor. Give me the food! As it will increase social welfare!

Does he have a point? Can you use consumer surplus to help you decide who to give the food to? Should you?

1. [4 points] Vincent Price utility function is U(X,Y)=X2Y, which the following marginal utilities: MUX=2XY, MUY=X2 His income is $200 and the price of X is $6 and the price of Y is $4.

1. Find Vincent’s optimal basket given those price and income

1. [3 points] Christopher Lee has the following utility function U(C,W)=min{3C,W}, where C is Cheese and W is Whiskey.

1. Find the demand curve for Cheese and Whiskey. (find : DC(PC, PW,I) and DW(PC, PW, I )).