Microeconomics Answers

Consider the utility function u(x) = ; and a standard budget constraint: p₁x₁+p₂x₂=I.

a. Are the preferences convex?

b. Are the preferences represented by this function homothetic? 

The following is intended to explore what kinds of own-price demand relationships

are logically possible in a two-good model with exogenous income (unless

otherwise specified).

For each of the following, indicate whether the relationship is possible or not and

explain:

1. Tastes are homothetic and the own-price demand relationship is positive.

2. A good is inferior and its own-price relationship is negative.

3. In a model with endogenous income, a good is normal and its own-price

demand relationship is negative.

4. In a model with endogenous income, a good is normal and its own-price

demand relationship is positive. Provide a graphical representation.

You are the manager of a firm that produces furniture. All your clients are in Kumasi (K) and Accra (A). Suppose the monthly inverse demand function for your furniture in in Accra and Kumasi combined is 𝑃 = 1200 − 4𝑄. Because of prohibitive cost of transporting furniture between Accra and Kumasi, you set up two plants, one in each town. The cost of producing furniture at each facility is given by 𝐶_A (𝑄_A ) = 8000 + 6𝑄_A² and 𝐶_K(𝑄_K) = 8000 + 6𝑄_K² where 𝑄 = 𝑄_A + 𝑄_K and 𝑄_A and 𝑄_K are the quantity of furniture produced at Accra and Kumasi respectively. Determine the profit-maximizing amounts of electricity to produce in the two facilities, the optimal price and the profit.

a)    Discuss Free Market Economic Model and Centrally Planned Model as economic systems for resource allocation and their implications on housing.

b)    Provide local and international examples (best practices) where these systems are applied.

 Discuss the Theory of Supply and its implications to the housing market.

 From an economic point of view, critically discuss unique features of housing and its

economic significance

 Discuss the Theory of Demand and its implications to the housing market.

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