Problem 1. For each of the following functions: 1/2 a).u (T1, 12) b).u (x1, T2) -2 (11 – 1)? – 3 (12 – 2)? 1. Graph indifference curves. 2. Find maximum and minimum of this function in the the following budget set (assume p1 = 2, p2 = 1 and m = 12): Pi¤i + P2T2 < m, 11 2 0, r2 2 0.

If the utility function (U) between food (F) and clothing (C) can be represented as U = F*C, then which combination of food and clothing will a rational consumer choose? a. (F, C) = (9, 25) O b. (F, C) = (25, 4) O c. (F, C) = (4, 16) d. (F, C) = (4, 25)

A student has a lunch utility function U(S, P) 8S + 3P, where S is number of salads per month and P is number of pizzas per month. The price of a salad is $5, the price of a pizza is 8, and his monthly income for lunch is $80. a) Derive the equation representing the consumer's demand for Salad. Represent the demand for Salad graphically. b) The price of Salad goes up to $25 and the price of Pizza does not change. Compute and represent graphically the new equilibrium of the student. What can you tell about the substitution effect on Salad and pizza

A B C

2) Which of the following utility functions represent the same preferences? Explain. a) U (x₁, x₂) = X₁ X₂ b) W (x₁, x₂) = 5lnx₁ +5lnx₂ c) V (x₁, x₂) = x₁¹/3x₂ ¹/3 - 0.8 d) Z(x₁, x₂) = 0.5x₁ + 0.5x₂

A consumer has utility (see image) on ice creams (x) and cakes (y).   (a) Are the indifference curves bowed towards the origin? (b) Derive his demand function (as a function of prices px, py and budget I) for ice cream (x).  (c)(Looking at the demand function you found in (b), Is ice cream a normal good? Are ice cream and cakes substitutes or complements? Calculate the income elasticity of market demand at the point px = 2, py = 1 and I = 12.