Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 1, Problem 5P
(a)
To determine
All agents are not optimized in the given scenario.
(b)
To determine
Results of being in equilibrium.
(c)
To determine
Shopper with most informative behavior.
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You have 6 hours to study for 2 exams tomorrow. The relationship between the time studying and test scores is shown below.
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a. Use the rule for determining optimal purchases to decide how many hours you should study each subject Treat each point on an exam like 1 unit of utility and
assume you are equally interested in doing well in economics and psychology.
You should study economics for 6 hours and psychology for 5 hours.
a) Prove that when the consumer is in equilibrium the marginal utility that is placed on the goods he/she consumes is equal to its price. Explain how the consumer can restore equilibrium if market condition changes.
Suppose you go to Trader Joe's to buy fruit for the week. You only like apples (A) and bananas
(B) and your weekly fruit budget is $11. When you arrive at Trader Joe's you notice that the
price of an apple is $1.00 and the price of a banana is $0.25.
QUESTION #1: How many apples and bananas should you buy?
QUESTION #2: When you have found the answer, draw a diagram that shows the outcome.
Step #1. Determine your preferences. Let's suppose that your preferences can be represented
by the following utility function: U(A, B) = AªBß = A0.40 B0.60
FYI: This utility function is known as a Cobb-Douglas utility function. It is the most commonly used function used in
economics! The reason we like it so much is that it has:
1. Constant returns (double your consumption of A and B and your utility doubles); a + B = 1
2. Diminishing marginal utility (the extra utility gained from consuming A (or B) decreases as you consume more of
the A good (or B good); a 0.40); B > a.
Step #2: Determine your…
Chapter 1 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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