AEC Assignment 2| Name: 40 points max 6 analytical questions: 22 points altogether 6 multiple choice questions: 3 points each On analytical questions, points may be deducted if you get the correct answer but make no effort to explain how you got it, of if your general process was correct but you got the wrong nal answer. I... l. (5 points) In each case below, identify the effect on the demand curve for steak: does it shift right or left? (Hint: ask yourself, for a given price of steak on the vertical axis, will people buy more or less of it as the change below occurs? If they buy less, then the demand curve would shi to the left.) a. An increase in the price of lamb b. A decrease in the population c. An increase in consumer income (you may assume steak is a normal good) d. A decrease in the price of steak sauce e. An increase in advertising by chicken producers 2. (4 points) Suppose the demand function for a good is expressed as Q = 60 4p. If the good currently sells for $10, then the price elasticity of demand equals A) -1.5 B) 41.6? C) -4 D) -1 3. (4 points) Suppose you are trying to understand a person's choices between spending on two goods, X and Y. For each situation below, draw an indifference curve for the two goods in a graph with Y on the vertical axis and X on the horizontal axis. a. When the two goods are perfect complements to each other, 13. When the two goods are perfect substitutes to each other, c. When the two goods are imperfect substitutes for each other, as in a Cobb-Douglas utility function. 4. (3 points) Suppose a consumer has a budget of $1000 to spend on goodsX and Z that have prices it";r = 10 and P2 = 5. a. Write the equation for the budget constraint. b. If Z is on the vertical axis, what is the slope of the budget constraint line? 2 1 5. (3 points) Assume that Joe's utility function is given by U = X873. If p1 = py = 1 and income is 1500, what is the optimal consumption for Joe? Hint: use the results in (3.29) and (3.30) from the Lagrangian constrained utility maximization problem. 6. (3 points) Continuing from 5, now assume that p1 = $10 and py = $20. How much of X and Y will Joe consume? Multiple choice: In the remaining questions, indicate which letter has the best answer. (3 points each) 7. An indifference curve represents bundles of goods that a consumer A) ranks from most preferred to least preferred. B) refers to any other bundle of goods. C) views as equally desirable. D) All of the above. 3. If a consumer prefers Apples to Bananas and prefers Bananas to Citrus Fruit, in order to satisfy assumptions about preferences, she hasjn prefer A) Apples to Citrus Fruit. B) Bananas to Apples. C) Citrus Fruit to Bananas. D) Citrus Fruit to Apples. 9. Consider the demand functions: d1 Q. = 250 - 2..\" d2 Qd = 300 - 3P Which of the demand functions reects a higher level of consumer incomes? A) d1 B) d2 C) d1 and d2 reect the same consumer incomes. D) More information is needed. 10. The marginal rate of transformation of v for it represents A) the slope of the budget constraint. B) the rate at which the consumer must give up y to get one more x. C) -Pfoy. D) All of the above. 11. By selecting a bundle where marginal rate of substitution (MRS) equals the marginal rate of transformation (MRT), the consumer is A) achieving a corner solution. B) reaching the highest possible indifference curve, she can afford. C) on a higher indifference curve than they can afford. D) not behaving in an optimal way. 12. The term \"inverse demand curve\" refers to A) a demand curve that slopes upward. B) the demand for \"inverses.\" C) the difference between quantity demanded and supplied at each price. D) expressing the demand curve in terms of price as a function of quantity