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  • Assignment Chapters 7-10

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    Mohit Rakyan
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    This document provides an economics assignment with multiple questions. It includes questions about: 1) Whether consumption behavior over 3 years is consistent with the Strong Axiom of Revealed Preference. 2) How a person's labor supply would change if they won a lottery prize or their income tax was cut. 3) Illustrating the income and substitution effects of a price change for food on a graph under different cases. 4) Calculating present and future value of income over two years, drawing a budget set graph, and finding optimal consumption analytically and graphically.

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    Assignment Chapters 7-10

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    This document provides an economics assignment with multiple questions. It includes questions about: 1) Whether consumption behavior over 3 years is consistent with the Strong Axiom of Revealed Preference. 2) How a person's labor supply would change if they won a lottery prize or their income tax was cut. 3) Illustrating the income and substitution effects of a price change for food on a graph under different cases. 4) Calculating present and future value of income over two years, drawing a budget set graph, and finding optimal consumption analytically and graphically.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    93 views1 page

    Assignment Chapters 7-10

    Uploaded by

    Mohit Rakyan
    This document provides an economics assignment with multiple questions. It includes questions about: 1) Whether consumption behavior over 3 years is consistent with the Strong Axiom of Revealed Preference. 2) How a person's labor supply would change if they won a lottery prize or their income tax was cut. 3) Illustrating the income and substitution effects of a price change for food on a graph under different cases. 4) Calculating present and future value of income over two years, drawing a budget set graph, and finding optimal consumption analytically and graphically.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    of 1

    BA (HONOURS) ECONOMICS, MIRANDA HOUSE SEMESTER 3, 2013-14 INTERMEDIATE MICROECEONOMICS ASSIGNMENT 2 Due: 3 October 2013 Max.

    marks 35

    1. Over a three year period, an individual exhibits the following consumption behaviour: PX PY X Y YEAR 1 3 3 7 4 YEAR 2 4 2 6 6 YEAR 3 5 1 7 3 Is this consistent with the Strong Axiom of Revealed preference? (5 marks) 2. Suppose a person's utility for leisure (L) and consumption (Y) can be expressed as U = YL and this person has no non-labour income. a. Assuming a wage rate of $10 per hour, show what happens to the person's labour supply when the person wins a lottery prize of $100 per day. (5 marks) b. Suppose a person's utility for leisure (L) and consumption (Y) can be expressed as U = Y + 0.5 L. Show what happens to the person's labour supply curve when the income tax is cut from 70 % to 30 %. (5 marks)
    3.

    Amir purchases two goods, food and clothing. He has a diminishing marginal rate of substitution of food for clothing. Let x denote the amount of food consumed and y the amount of clothing. Suppose the price of food increase from Px1 to Px2. On a clearly labelled graph, illustrate the income and substitution effects of the price change on the consumption of food. Do so for each of the following cases: a. Food is a normal good. (5 marks) b. The income elasticity of demand for food is zero. (5 marks)

    4. Gerald is a CEO at Brainies Consulting Inc. His income in the first year is m1= $200 and in the second m2= $200. Assume that the interest rate is r = 100%: (His time horizon is limited to these two years.) a. Find PV and FV of Geralds income. (1+1 marks) b. Show on the graph (C1,C2) Geralds budget set. Mark PV , FV and the slope of his budget line explain what borrowing/lending strategy gives Gerald each of the two "extreme" consumption points.(how much does he borrow/lend in the first period, how much does he pay back/ receive in the second period?) (3 marks) c. Suppose his utility function is U(C1;C2) = lnC1 + lnC2 Find analytically Geralds optimal choice and show it on the graph. Does the optimal consumption involve saving or borrowing? (5 marks)

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