Department of Economics
Intermediate Microeconomic Theory
1. Gore Monde is a food lover who lives on bread and wine. Let his
marginal utility of bread, MUb, be given algebraically by the
expression MUb = 40 - 5b. Similarly, let his marginal
utility of wine be MUw = 30 - w. The current prices of
bread and wine are Pb = 5 and Pw = 1, respectively. Gore's income is
a. What is the greatest quantity of bread that Gore can consume?
b. What is the greatest quantity of wine that Gore can consume?
c. What is the slope of Gore's budget constraint when you put wine on the
horizontal axis and bread on the vertical axis?
d. Given the prices and Gore's income, how much bread and wine should he
consume? Bread = , Wine =
e. Suppose that Gore's income falls to 10. How much bread and wine will
he consume now? Bread = , Wine =
2. Al Fabette consumes x's and y's. With y on the vertical and x on
the horizontal, his marginal rate of substitution in consumption is given by
MRS = y/x. At a shop on Sesame Street he can buy his x's and y's at
the prices Px = 5 and Py = 1.
a. Fill in the boxes
below to create Al's income expansion path.
b. Suppose that the price of a unit of x falls to Px=4.
Then Al's income expansion path will become
3. Put y on the vertical and x on the horizontal. Let Pepe Smith have the
marginal rate of substitution MRS = y. His income is 120 and the price
of y is Py = 1.
a. In the box below write an expression for Pepe's price expansion
b. In the box below write an expression for Pepe's demand curve
associated with the price expansion path you found in part a of the
question. Write your expression in the box below:
Hints: MRSxy = MUx/MUy = Px/Py