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Econ 301 problem set 2 perl

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University of Wisconsin-Milwaukee
Department of Economics
296:301 Prof. J. Peoples
Problem Set 2: Due Friday February 26th, 2021
This problem set is partitioned into two sections. Section I requires the use of consumer
theory to derive the Hicksian Demand Curve. ask for the similarities and differences of
economic concepts. Section II requires the application of demand elasticity.
Section I: Derivation of Hicksian Demand Curve -- 60 points
Simone Biles’ utility function is as follows:
U= 10XY
2
Where, X, is the quantity of good X consumed, Y, is the quantity of good Y consumed
and, U, is Simone’s utility function.
Suppose Simone’s utility is 10. Use EXCEL to draw her indifference curve when good
‘Y’ varies from 1 to 100 by increments of 1. Use the scatter plot in EXCEL to graph this
indifference curve. Is this curve indicative of substitute goods? (i.e., is the indifference
curve convex to the origin?) 10 points
Note that the remainder of part 1 has nothing to do with question A.
Remember the Simone’s general budget constraint for the two goods is a follow:
B= P
X
X + P
Y
Y
Also, her marginal utilities are:
MU
x
=10Y
2
and MU
y
=20XY
A. Derive Simone’s Marshallian demand equation for good X. Also compute her
demand for good X when B= 500, and the price of good X is 1 and 2. Also draw
the Marshallian demand curve for X at these prices. Please show all of your
work to receive full credit. (10 points)

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