ECON 212 Quiz: ECON 212quizquiz2c.w04
1
Student Number:
QUIZ 2
Section C
Question 1. [4 marks] Walter consumes two goods,
X
and
Y
. Walter’s utility function
can be represented by YXU2
10=. The price of good
X
is $2, and the price of good
Y
is
$1. Walter has $30 to spend on the purchases of goods
X
and
Y
. If Walter is
maximizing his utility subject to his budget constraint, how many units of goods
X
and
Y
should he buy?
Answer:
Walter should choose
X
and
Y
at the point where the slope of the indifference curve
equals the slope of the budget constraint. Thus,
2
202022
10101
22
XX
YY
MUP
MUP
XYYY
XXX
XY
XY
=
===
=
=
Substituting this equation into the budget constraint yields the solution.
230
230
330
10
10
XY
XX
X
X
Y
+=
+=
=
=
=
Question 2. [6 marks] Sally likes peanut butter and jelly together in her sandwiches.
However, Sally is very particular about the proportions of peanut butter and jelly.
Specifically, Sally likes 2 scoops of jelly with each 1 scoop of peanut butter. The cost of
“scoops” of peanut butter and jelly are $0.50 and $0.20, respectively. Sally has $9 each
week to spend on peanut butter and jelly. (You can assume that Sally’s mother provides
the bread for the sandwiches.)
a) [1.5 marks] Write down Sally’s utility function over peanut butter (P) and Jelly (J).
Answer: U(J,P) = min{J, 2P}
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