ECON 211 – HW3
Due October 18, 2018
STAPLE your work and add a COVER PAGE
1.
Q
MUx
MUy
Given the following marginal utility schedule for good X and good Y for the individual, and given that the
price of X and the price of Y are both $1, and that the individual spends all income of $7 on X and Y,
1
15
12
2
11
9
3
9
6
4
6
5
5
4
3
6
3
2
7
1
1
Determine how much total utility the individual receives when he or she maximizes utility? How much
utility would the individual get if he or she spent all income on X or Y?
2.
3.
4.
5.
6.
7.
Show on a figure the effect of a government warning that cigarette smoking is dangerous to health using
indifference curves a budget line. Assume the individual has a choice between cigarettes and all other
goods. Also, start with an assumption that the individual was maximizing utility before the information
from the government. Provide the necessary explanation for your answer. Label cigarettes on the y-axis
and all other goods on the x-axis.
Show by indifference curve analysis the choice of one couple not to have children and of another couple,
with the same income and facing the same costs of having and raising children, to have children. Make
sure to explain how you arrived at your answer. Hint, search for this question in the book.
The average number of children per family has declined in the face of rising family income, so children
must be an inferior good. True or False? Explain. http://freakonomics.com/2011/06/10/the-rich-vs-poordebate-are-kids-normal-or-inferior-goods/
Derive and plot Francesca’s demand curve for pie if she eats pie only a la mode and does not eat either
pie or ice cream alone (pie and ice cream are perfect complements).
Separate the substitution effect from the income effect for an increase in price of an inferior good.
Separate the substitution effect from the income effect for an increase in price of a Giffen good.