1. Ray Starr has the utility function U(x,y)=y/(100-x)
a. Does Ray prefer more to less of both goods?
b. Draw a diagram showing Ray's indifference curves corresponding to the utility levels U=1/2, U=1, and U=2
c. How can you describe the set of indifference curves for Ray? Is the utility homothetic?
d. If the price of x is $1 and the price of y is $1, find Ray's demand for x as a function of his income and draw a diagram showing his Engel curve for x.
Identify the choice that best completes the statement or answers the question.
____ 1. In Ozone, California, people all have the same tastes and they all like hot tubs. Nobody wants more than one hot tub but a person with wealth $W will be willing to pay up to $.01W for a hot tub. The number of people with a wealth greater than $W for any given W in Ozone is approximately 1,000,000/W. The price elasticity of demand for hot tubs in Ozone, California, is
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a.
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?0.1.
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b.
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?0.01.
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c.
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?1.
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d.
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?0.4.
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e.
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none of the above.
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____ 2. Dr. Social Science has recently figured out how to clone consumers. His first effort was done on the population of Walla, Washington. Each original citizen got a clone who had exactly the same income and preferences. Which of the following statements describes what happened to the demand function for tuna-fish casseroles in Walla?
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a.
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The elasticity doubled and the slope remained constant.
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b.
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The elasticity did not change at any price.
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c.
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The elasticity of demand doubled and the slope doubled.
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d.
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The elasticity halved and the slope remained constant.
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e.
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none of the above.
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____ 3. At the price of $100, tourists demand 267 airplane tickets. At the same price, business travelers demand 237. At the price $110, tourists demand 127 tickets and business travelers demand 127. Assuming that the demand curves of business travelers and tourists are both linear over this price range, what is the price elasticity of demand at the price $100?
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a.
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?4.96
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b.
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?25
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c.
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?5.46
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d.
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?0.05
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e.
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none of the above.
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