1. Remember Sam who loves his manhattans made exactly to perfection according to the following family recipe: 2 oz. Whiskey, 1 tbsp. SweetVermouth, and a pinch of Angostura Bitters? If Manhattans are the only thing Sam consumes, what is the solution to Sam’s constrained utility maximization exercise assuming that PW = $2 per oz, PSV = $0.50 per tbsp. and PAB = $4 per pinch and that Sam’s income for drinking tonight is $50?
  2. Consider a person who gets utility from water (in gallons) and $all other goods. Suppose during a severe drought that the government rations water for the day, setting quotas on how much a consumer can purchase.
  3. If a consumer can afford a maximum of 20 gallons a day but the government restricts purchases to no more than 10 gallons a day, how does the consumer’s budget set change?
  4. Illustrate before and after for a consumer who is made worse off by this policy.
  5. Illustrate before and after for a second consumer who is no worse off by this policy.
  6. Nigel, a Brit living in London, and Bob, a Yank living in L.A., have exactly the same tastes, and both see sports utility vehicles (SUVs) and luxury sedans as perfect substitutes for each other. Assuming both Nigel and Bob have nicely behaved preferences, give a plausible economic explanation (which includes the aid of a graph) of why Bob drives the SUV and Nigel drives the luxury sedan.
  1. Ronald McMann likes only steak (S) and Fries (F), and gets utility from them according to the following utility function: u=S2/5F3/5
  2. Find the demand system for Ron. That is, determine the demand function for S and the demand function for F.
  3. Fill in the blanks:
    No matter how much Ron has to spend on his bundle of steak and fries and no matter what the prices of steak and fries are, Ron always spends ______% on steak and ______% on fries. Thus if Ron has $20 to spend, he will spend $______on steak and $______on fries. If the price of steak is $2.00 per pound and the price of fries is $.50 per pound, he will buy ______pounds of steak and ______pounds of fries. If the amount he has to spend doubles and both the prices of steak and fries double, Ron would then buy ______pounds of steak and ______pounds of fries.
  4. Would your answers change is we changed Ron's utility function to: w=S2F3 ?