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Econ 2200 Assignment #1 Winter 2013




Question;Q1. Given the demand for cheese given by the following equation: Qd = 700 2P Prw + 0.1I, where P is the price of cheese, Prw is the price of red wine, and I is average consumer income.a) What can you say about the cross price elasticity of the demand for cheese and the price of red wine? Based on the elasticity, are cheese and red wine demand substitutes or demand complements? Explainb) What can you say about the income elasticity of the demand for cheese when average consumer income rises? What type of good is cheese?c) Graph the demand curve for cheese when Prw = 100 and I = 10, 000.Q2. Identify three assumptions placed on consumer preferences in consumer theory and explain what each means mean about the consumers ability to rank any two baskets Q3. Briefly explain what convex indifference curves means in terms of marginal utility.Q4. Rob always enjoys a coffee with a muffin as he starts his day.a. Rob currently drinks one cup of coffee (C) for every muffin (M) he consumes. Graph two of Robs indifference curves. Place muffins on the horizontal axis.b. Write an expression to capture Robs preferencesc. Rob becomes a bigger coffee drinker and now drinks two cups of coffee for every muffin he consumes. Graph two of Robs new indifference curves and write the expression to represent his preferences.Q5. Do you agree or disagree with the following statement: The price of corn has increased recently due to poor weather last summer, As a result, corn growers are expecting the demand for corn to decrease. Explain.Q6. Roger likes ice cream but he does not care whether he has more yogurt or not. Graph two of Rogers indifference curves and indicate the direction of Rogers preferences.Q7. Jane has a utility function that depends on the number of plays and the number of operas seen each month. Her utility function is given by U = xy2, where x is the number of plays seen per month and y is the number of operas seen per month.a) What is the corresponding marginal utility for each good?b) Does Jane believe that more is better for each good?c) Does Jane have a diminishing marginal utility for each good?Q8. Keira likes to take her lunch to school, however, she does not care whether she takes chicken salad (CS) or tuna (T) sandwiches since both contain the amount of protein. Place tuna sandwiches on the horizontal axis.a. Write the expression to depict Keiras preferences.b. Draw two of Keiras indifference curves. What is the marginal rate of substitution? Why?c. Keira is influenced by a new advertising campaign which convincers her that tuna sandwiches are twice as good as chicken salad sandwiches. Given this information:Write the expression to represent Keiras new preferences.KeiraSketch two of s indifference curves.What is the new marginal rate of substitution?


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