Introduction to Microeconomics

ECO 101: Introduction to Microeconomics

Section 11

Summer 2010

University X

Assignment 3

Full marks: 10

Time of Submission: Just A week After Assigning, at the end of the class time.

Person to be submitted to :ME

Answer all the questions. The parenthesis carries the credit for each question.

1)      For an individual, the initial income was 1000 taka. He used to consume X1=200 units and X2=400 units. Then his income goes up to 2000 taka and he consumes 600 of X1 and 300 of X2. Compute the income elasticities  and comment on the nature of commodity.                                                                                                            (2.5)

2)      Let’s assume a three commodity market, Good X, Y and Z. Initially, the price of good X was 10/piece and quantities demanded for Good X, Y and Z respectively were 25 pieces, 20 pieces and 35 pieces. But when price of Good X rose to 12, quantities demanded for Good X and Z reduced to 20 and 30 pieces respectively but that of Good Y rose to 25 pieces. What is the price elasticity of demand for good X between price 10 and 12? Determine the cross price elasticities between Good X and Y; and Good X and Z.                                                                                                (2.5)

3)      We are given an equation, 5x+2y=100, where 100 is the income and x an y are the quantities of good x and y consumed. What is the slope of the budget line? What the prices of x and y per unit? Suppose, the income increases to 150. What is the slope now? How did the budget line shift? Does it increase consumption possibilities? Show the entire thing in a graph using budget line and indifference curves.     (5)

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