ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:1. Look at the figure representing an individual's preferences.
X₂4
X₁
Which axiom or axioms are violated? Pick from Monotonicity for X₁1, Monotonicity for X₂
and Convexity. Explain your reasoning.
2. In Year 1, the price of good 1 was p₁ = $1, the price of good 2, was P2
= $2 and
consumer income was M = $100. In Year 2, consumer income increased to M = $150
and the price of good 1 increased to p₁ $2. The price of good 2 remained the same.
Can the consumer afford her old consumption choice at the new prices and income?
(Yes/No/Cannot say)
-
3. George is deciding whether or not buy health insurance. He has a monthly income of
w = $900. There is 20% probability that he will face health expenditures of $500 in any
given month. His Certainty Equivalent (CE) for taking on this risk is $784.
A health insurance that covers all her health expenditures is offered at a Premium of
$100 a month. Will she buy the insurance? (Yes/No/Cannot Say)
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