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Week 2 Problem Set

The document is a problem set for ECON111 Section 3, requiring students to submit their answers in PDF format by a specified deadline. It includes questions related to utility functions, marginal utility, marginal rate of substitution, and indifference curves. Students are expected to analyze various utility functions and their implications on consumption and substitutability.

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3 views1 page

Week 2 Problem Set

The document is a problem set for ECON111 Section 3, requiring students to submit their answers in PDF format by a specified deadline. It includes questions related to utility functions, marginal utility, marginal rate of substitution, and indifference curves. Students are expected to analyze various utility functions and their implications on consumption and substitutability.

Uploaded by

isaacseahorse97
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ECON111 Section 3

Week 2 Problem Set

To get credit for this homework, you must submit your answer in pdf in the Assignment tab in
eLearn before the next class (noon Tuesday, 27 January). One submission per student.
Don’t forget to write your name and student number.

Answer the following questions using the utility functions given in Questions 1-9:

a) Determine 𝑀𝑈 and 𝑀𝑈 . Does the assumption that more is better hold for both goods?
How does the marginal utility of each good change as consumption of that good increases?
Explain the economic intuition.
b) Determine 𝑀𝑅𝑆 , . How does the marginal rate of substitution change as 𝑥 increases
along an indifference curve? Explain what this implies about substitutability.
c) On a graph with 𝑥 on the horizontal axis and 𝑦 on the vertical axis, draw a typical
indifference curve consistent with the utility function. Indicate whether it intersects either
or both axes, and label the curve 𝑈 . On the same graph draw a second indifference curve
𝑈 >𝑈.

1. 𝑈(𝑥, 𝑦) = 3𝑥 + 𝑦

2. 𝑈(𝑥, 𝑦) = 𝑦√𝑥

3. 𝑈(𝑥, 𝑦) = 𝑥𝑦

4. 𝑈(𝑥, 𝑦) = 𝑥𝑦 + 𝑥

. .
5. 𝑈(𝑥, 𝑦) = 𝑥 𝑦

6. 𝑈(𝑥, 𝑦) = √𝑥 + 2 𝑦

7. 𝑈(𝑥, 𝑦) = 𝑥 + 𝑦

8. Cobb-Douglas utility function: 𝑈(𝑥, 𝑦) = 𝐴𝑥 𝑦 , where 𝐴, 𝛼, and 𝛽 are positive constants.

9. Quasi-linear utility function: 𝑈(𝑥, 𝑦) = 2√𝑥 + 𝑦. Show that the slope of every indifference
curve will be the same when x = 4. What is the value of that slope?

10. Suppose a person has a utility function given by: 𝑈(𝑥, 𝑦) = [𝑥 + 𝑦 ] / , where −∞ < 𝜌 <
−1. This is called a constant elasticity of substitution (CES) utility function. What is 𝑀𝑅𝑆 , ?
Is 𝑀𝑅𝑆 , diminishing, constant, or increasing as the consumer substitutes 𝑥 for 𝑦 along an
indifference curve?

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