Please do not leave the exam room within the final 15 minutes of the exam, except in an emergency.
|
|
- Job Hubbard
- 6 years ago
- Views:
Transcription
1 Economics 21: Microeconomics (Spring 2000) Midterm Exam 1 - Answers Professor Andreas Bentz instructions You can obtain a total of 100 points on this exam. Read each question carefully before answering it. Do not use any books or notes. The use of non-programmable calculators is permitted. You have 65 minutes to answer all questions. Please use the space provided to answer questions; if you need more space, use the back of the page. Please do not leave the exam room within the final 15 minutes of the exam, except in an emergency. At the end of the exam, you must turn in your answers promptly: if you continue writing I will take off points. Good luck. Name: Class time (circle one): 9 (section 1) 10 (section 2) questions You have estimated that the market demand curve for gas looks like this: X(p) = 1,000,000 p -2, where X is the quantity of gas (in gallons), and p is the price per gallon (in dollars). a. Currently, gas costs $1.49. What is the price elasticity of demand? (5 points) answer: elasticity = [dx(p)/dp][p/x(p)] = -2,000,000 p -3 p / (1,000,000 p -2 ) = - 2 b. OPEC controls the quantity of gas on the market. If it were to increase output slightly, would OPEC's revenue increase or decrease? At what rate? (5 points) answer: MR = p[1+1/elasticity] = p 1/2 > 0. Therefore revenue would increase, at a rate of 1/2 p (here: 0.745) page 1 of 1
2 2. You are advising the government on its labor policy. From econometric estimates you know that a representative worker's utility function for the two goods general consumption (c) and leisure (l) looks like this: u(l, c) = ln(l) + c, where consumption (c) is measured in units per day and leisure (l) in hours per day, and ln is the natural logarithm. a. Every unit of consumption costs p (the price of consumption), and for every hour a worker works she receives a gross wage of w (the hourly wage). There is an income tax at the uniform rate t (that is, for every dollar she earns, she takes (1 - t) dollars home). Write down the budget constraint for this problem. (3 points) answer: pc = (24 - l) w (1-t) b. Write down the Lagrangean for the constrained maximization problem (maximize utility subject to the budget constraint). Then solve for the optimal choices of l (leisure) and c (consumption). (10 points) answer: L(l, c, λ) = ln(l) + c - λ(pc - 24 w (1-t) + l w (1-t)) FOC: (i) (ii) (iii) 1/l = λ w (1-t) 1 = λp pc = 24 w (1-t) - l w (1-t) from (ii): λ = 1/p put this into (i): 1/l = (1-t) w/p, or: l = p/[w(1-t)] work out consumption from (iii): pc = 24 w (1-t) - p/[w(1-t)] w (1-t) or: pc = 24 w (1-t) - p, or: c = 24 [w(1-t)]/p - 1 page 2 of 2
3 c. Denote by n the number of hours this worker will work (generally, it will depend on the wage, prices, and the income tax rate). Write down the labor supply function n(w, p, t). The government thinks about increasing income tax (to pay for better healthcare provision). How does this worker's labor supply respond (i.e. does it increase or decrease)? At what rate does this worker's labor supply change as income tax is increased slightly? (4 points) answer: n(w, p, t) = 24 - l = 24 - p/[w(1-t)] since dn(w, p, t)/dt = - p/w (1-t) -2, which is < 0, labor supply decreases as the tax increases, and it does so at a rate of - p/w (1-t) -2. d. Suppose the tax is 20%, the price of consumption (p) is $80 per unit, and the (gross) wage rate (w) is $10 per hour. How much will the worker work per day? What is the tax revenue to the government therefore (per day)? (2 points) answer: n(10, 80, 0.2) = 24-80/8 = 14 government makes $2 in taxes for every hour this worker works, and since she works for 14 hours, govt. makes $28. e. If the government redistributed some of the tax revenue back to the worker (as a straightforward money payment to the worker), would this worker's labor supply increase, decrease, or remain the same? Why? (4 points) answer: The worker's labor supply is independent of wealth you can see this from drawing the (quasilinear) indifference curves: you will see that there is no income effect. 3. You have the following preferences over goods 1 and 2: u(x 1, x 2 ) = c(x 1/2 1 )(x 1/2 2 ), where x 1, x 2 are the quantities of good 1 and 2, and c is a positive parameter. a. What is the marginal rate of substitution (MRS)? (4 points) answer: MRS = - MU1 / MU2 = - [c (1/2) (x -1/2 1 )(x 1/2 2 )] / [c (1/2) (x 1/2 1 ) (x -1/2 2 )] = - x 2 / x 1. b. If good 1 is twice as expensive as good 2 (its price is twice that of the price of good 2), in what ratio will you (optimally) consume goods 1 and 2? (2 points) answer: Optimality implies that MRS = p 1 / p 2. Therefore, if p 1 / p 2 = 2 (because good 1 is twice as expensive as good 2), at the optimum, x 2 / x 1 = 2: the consumer will consume twice as much of good 2 as of good 1. page 3 of 3
4 4. Your preferences over timed consumption can be represented by the following utility function: u(c 1, c 2 ) = c 1 c 2, where c 1 is consumption this period, and c 2 is consumption next period. (This consumer lives only for two periods.) In period 1, this consumer's endowment is m 1, and in period 2, m 2. There is an interest rate r at which you can borrow and save, and inflation is π. a. Write down the budget constraint for this problem. (2 points) answer: c 2 = m 2 + [(1+r)/(1+π)](m 1 - c 1 ) b. Write down (without solving it) the Lagrangean for this problem. (2 points) answer: L(c 1, c 2, λ) = c 1 c 2 - λ{c 2 - m 2 - [(1+r)/(1+π)](m 1 - c 1 )} c. The optimal demands for consumption this period and for consumption next period for the above preferences are given by: 1 + π c 1 = 0.5 m1 + m r Suppose that the interest rate is 10% and there is no inflation. Your endowment in this period (m 1 ) is 40 and your endowment (m 2 ) next period is 22. Are you a lender or a borrower? How much do you lend/save (or borrow)? (4 points) 1 answer: c 1 = = since you consume less this period than your endowment, you are a lender. You lend (save) 10. d. Suppose the inflation rate increases to 10%. How much will you lend (or borrow) now? Is this more or less than in part (c)? Is this result generally predictable, or could it theoretically have been different (if you didn't know precisely the utility function)? Explain. In your explanation, make sure you give a good intuition for wealth ("income") and substitution effects. (No calculation of these effects is required.) (8 points) answer: Put in the numbers again to obtain c 1 = 31. You now lend less (although you are still a lender). Here is the explanation: as the inflation rate increases, the real rate of interest decreases. This means that there is a substitution effect that tells you to consume more of period-1 consumption. If you are a lender, you are now less wealthy, so you will consume less of all normal goods: the income effect tells you to consume less of period-1 consumption. So the overall effect is uncertain. page 4 of 4
5 5. Your preferences over two goods can be represented by the following utility function: u(x 1, x 2 ) = x 1 x 2 + x 2, and good 1 costs p 1 per unit and good 2 costs p 2 per unit. Your wealth is m. a. Write down the Lagrangean and solve for the demand function for goods 1 and 2. (10 points) answer: L(x 1, x 2, λ) = x 1 x 2 + x 2 - λ( p 1 x 1 + p 2 x 2 - m) FOC: (i) x 2 = λp 1 (ii) x = λp 2 (iii) p 1 x 1 + p 2 x 2 = m from (i): λ = x 2 / p 1 putting this into (ii): x = x 2 (p 2 /p 1 ), and multiplying through by p 1 we get: p 1 x 1 + p 1 = p 2 x 2. Adding p 1 x 1 on both sides, we get 2p 1 x 1 + p 1 = p 2 x 2 + p 1 x 1. But from (iii), p 2 x 2 + p 1 x 1 = m, so that 2p 1 x 1 + p 1 = m. Solve for x 1 to get 0.5 (m/p 1 ) Putting this into (iii) and solving for x 2 you get x 2 = 0.5(m/p 2 ) + 0.5(p 1 /p 2 ). b. Is good 1 a normal good or an inferior good? Is it a Giffen good or a non-giffen good? For each of these, explain very briefly why. (4 points) answer: good 1 is a normal good: the partial derivative with respect to m is 0.5/p 1 which is positive. good 1 is also non-giffen: the partial derivative of demand with respect to p 1 is (m/p 1 2 ) page 5 of 5
6 c. Suppose your demand functions for goods 1 and 2 look like this: x 1 = 0.5(m/p 1 ) - 1, and x 2 = 0.5(m/p 2 ) + (p 1 /p 2 ). Further, suppose that p 1 = 11 and p 2 = 11 and your money income is m = 110. Now the price of good 1 falls to p 1 ' = 10. What is the total effect on demand of good 1 of this price fall? What size (and direction) is the substitution effect for good 1, what is the income effect for good 1 (use the Slutsky decomposition)? (10 points) Instructions: You can either use the rate-of-change [derivative] version of the Slutsky equation, or you can calculate the effects more directly. answer: First, you want to consume 4 units of good 1 and 6 units of good 2. (Just put the numbers p 1 = 11, p 2 = 11 and m = 110 into the demand functions for good 1 and good 2.) After the price change, you want to consume 4.5 units of good 1. (Just put the numbers p 1 ' = 10, p 2 = 11 and m = 110 into the demand function for good 1.) Now, in order for you still to be able to buy the bundle (4, 6) (the original bundle) after the price change, you need 10x4 + 11x6 = 106 income. If you had that income (and faced the new prices, p 1 ' = 10, p 2 = 11), you would want to consume 4.3 units of good 1. So the substitution effect tells you to consume 0.3 units more (from 4 to 4.3), and then the income effect tells you to consume 0.2 units more (from 4.3 to 4.5). 6. You are hired by Barings Bank to value financial products. Suppose you think that the interest rate over the lifetime of this bond will be constant at 10%. a. How much is a $22 coupon bond with a face value of $110 and a maturity date of April 19, 2001, worth to you today? (Assume you will get today's coupon.) (4 points) answer: PV = /(1.1) + 110/(1.1) = = 142. b. Suppose in the bond market this bond currently trades at $120. This gets you worried that you have estimated the interest rate higher, or lower, than everyone else. Which? (2 points) answer: You have clearly underestimated the interest rate. The market values the bond at a lower price than you, so the market (all the other individuals out there who buy and sell this bond) must have used a higher interest rate to calculate how much the bond is worth to them. page 6 of 6
7 7. General Electric has recently invested heavily in projects that have low immediate returns, but promise high returns in the future - in fact, GE has always pursued its investment strategy so as to maximize GE's present value. However, management fears that myopic (and economically badly informed) shareholders may dislike this investment strategy. Therefore GE hires you to write a short justification, based on the Fisher Separation Theorem, for why GE has acted in the interest of all shareholders. Use diagrams as appropriate. (15 points) answer: In your answer, you should point out that firms can structure the payouts to shareholders differently, according to the investment strategy that they pursue. If they invest in projects that have no immediate payout but a future payout, that would mean that a shareholder's income this period is low, and income next period is high. If shareholders are myopic they will not like this investment strategy if they cannot lend or borrow. If, however, they can lend and borrow at the same rate of interest, then they should be interested in the firm pursuing the investment strategy that gives the shareholders the highest present value of their payouts (i.e. the investment that maximizes the present value of the firm). Since this is what GE has just done, shareholders should not object to this strategy. Here is the diagram that you might have wanted to draw: Maximizing present value means shifting the shareholders' (black) budget constraint out as far as possible. All shareholders are as well off as possible (on the highest indifference curve). PV PV page 7 of 7
There are 7 questions on this exam. These 7 questions are independent of each other.
Economics 21: Microeconomics (Summer 2000) Midterm Exam 1 Professor Andreas Bentz instructions You can obtain a total of 100 points on this exam. Read each question carefully before answering it. Do not
More informationThere are 9 questions on this exam. These 9 questions are independent of each other.
Economics 21: Microeconomics (Summer 2001) Midterm Exam 1 Professor Andreas Bentz instructions You can obtain a total of 100 points on this exam. Read each question carefully before answering it. Do not
More informationEach question is self-contained, and assumptions made in one question do not carry over to other questions, unless explicitly specified.
Economics 21: Microeconomics (Spring 2000) Final Exam Professor Andreas Bentz instructions You can obtain a total of 160 points on this exam. Read each question carefully before answering it. Do not use
More informationThere are 10 questions on this exam. These 10 questions are independent of each other.
Economics 21: Microeconomics (Summer 2002) Final Exam Professor Andreas Bentz instructions You can obtain a total of 160 points on this exam. Read each question carefully before answering it. Do not use
More informationChapter 4 Topics. Behavior of the representative consumer Behavior of the representative firm Pearson Education, Inc.
Chapter 4 Topics Behavior of the representative consumer Behavior of the representative firm 1-1 Representative Consumer Consumer s preferences over consumption and leisure as represented by indifference
More information1a. Define and comment upon Slutsky s substitution effect.
Microeconomics Midterm test 1 Time: 50 minutes. For answers to type A questions (open questions) only use the space in the box below For each question B (multiple choice) there is a single correct answer.
More informationEconS 301 Intermediate Microeconomics Review Session #4
EconS 301 Intermediate Microeconomics Review Session #4 1. Suppose a person's utility for leisure (L) and consumption () can be expressed as U L and this person has no non-labor income. a) Assuming a wage
More informationMidterm 1 (A) U(x 1, x 2 ) = (x 1 ) 4 (x 2 ) 2
Econ Intermediate Microeconomics Prof. Marek Weretka Midterm (A) You have 7 minutes to complete the exam. The midterm consists of questions (5+++5= points) Problem (5p) (Well-behaved preferences) Martha
More informationNAME: ID # : Intermediate Macroeconomics ECON 302 Spring 2009 Midterm 1
NAME: ID # : Intermediate Macroeconomics ECON 302 Spring 2009 Midterm 1 Instructions: This exam consists of two parts. There are twenty multiple choice questions, each worth 2.5 points (totaling 50 points).
More informationAS/ECON AF Answers to Assignment 1 October Q1. Find the equation of the production possibility curve in the following 2 good, 2 input
AS/ECON 4070 3.0AF Answers to Assignment 1 October 008 economy. Q1. Find the equation of the production possibility curve in the following good, input Food and clothing are both produced using labour and
More informationIntro to Economic analysis
Intro to Economic analysis Alberto Bisin - NYU 1 The Consumer Problem Consider an agent choosing her consumption of goods 1 and 2 for a given budget. This is the workhorse of microeconomic theory. (Notice
More informationProblem 1 / 25 Problem 2 / 25 Problem 3 / 25 Problem 4 / 25
Department of Economics Boston College Economics 202 (Section 05) Macroeconomic Theory Midterm Exam Suggested Solutions Professor Sanjay Chugh Fall 203 NAME: The Exam has a total of four (4) problems and
More informationChapter 4. Consumer and Firm Behavior: The Work- Leisure Decision and Profit Maximization. Copyright 2014 Pearson Education, Inc.
Chapter 4 Consumer and Firm Behavior: The Work- Leisure Decision and Profit Maximization Copyright Chapter 4 Topics Behavior of the representative consumer Behavior of the representative firm 1-2 Representative
More informationProblem 1 / 20 Problem 2 / 30 Problem 3 / 25 Problem 4 / 25
Department of Applied Economics Johns Hopkins University Economics 60 Macroeconomic Theory and Policy Midterm Exam Suggested Solutions Professor Sanjay Chugh Fall 00 NAME: The Exam has a total of four
More informationFINANCE THEORY: Intertemporal. and Optimal Firm Investment Decisions. Eric Zivot Econ 422 Summer R.W.Parks/E. Zivot ECON 422:Fisher 1.
FINANCE THEORY: Intertemporal Consumption-Saving and Optimal Firm Investment Decisions Eric Zivot Econ 422 Summer 21 ECON 422:Fisher 1 Reading PCBR, Chapter 1 (general overview of financial decision making)
More informationQueen s University Faculty of Arts and Science Department of Economics ECON 222 Macroeconomic Theory I Fall Term 2012
Queen s University Faculty of Arts and Science Department of Economics ECON 222 Macroeconomic Theory I Fall Term 2012 Sections 001 and 002 Instructors: Margaux MacDonald (001), Robert McKeown (002) Final
More informationChoice. A. Optimal choice 1. move along the budget line until preferred set doesn t cross the budget set. Figure 5.1.
Choice 34 Choice A. Optimal choice 1. move along the budget line until preferred set doesn t cross the budget set. Figure 5.1. Optimal choice x* 2 x* x 1 1 Figure 5.1 2. note that tangency occurs at optimal
More information9. Real business cycles in a two period economy
9. Real business cycles in a two period economy Index: 9. Real business cycles in a two period economy... 9. Introduction... 9. The Representative Agent Two Period Production Economy... 9.. The representative
More informationEcn Intermediate Microeconomic Theory University of California - Davis October 16, 2008 Professor John Parman. Midterm 1
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2008 Professor John Parman Midterm 1 You have until 6pm to complete the exam, be certain to use your time wisely.
More informationTheoretical Tools of Public Finance. 131 Undergraduate Public Economics Emmanuel Saez UC Berkeley
Theoretical Tools of Public Finance 131 Undergraduate Public Economics Emmanuel Saez UC Berkeley 1 THEORETICAL AND EMPIRICAL TOOLS Theoretical tools: The set of tools designed to understand the mechanics
More informationEconomics 11: Solutions to Practice Final
Economics 11: s to Practice Final September 20, 2009 Note: In order to give you extra practice on production and equilibrium, this practice final is skewed towards topics covered after the midterm. The
More informationBuying and Selling. Chapter Nine. Endowments. Buying and Selling. Buying and Selling
Buying and Selling Chapter Nine Buying and Selling Trade involves exchange -- when something is bought something else must be sold. What will be bought? What will be sold? Who will be a buyer? Who will
More information- ---Microeconomics Mid-term test 09/11/2016 First name Last name n matricola
Microeconomics Midterm test 09/11/2016 First name Last name n matricola Time: 60 minutes. For answers to type A questions (open questions) only use the space in the box below For each question B (multiple
More informationOverview Definitions Mathematical Properties Properties of Economic Functions Exam Tips. Midterm 1 Review. ECON 100A - Fall Vincent Leah-Martin
ECON 100A - Fall 2013 1 UCSD October 20, 2013 1 vleahmar@uscd.edu Preferences We started with a bundle of commodities: (x 1, x 2, x 3,...) (apples, bannanas, beer,...) Preferences We started with a bundle
More informationDO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST.
Midterm Exam #2; Page 1 of 10 Economics 101 Professor Wallace Midterm #2, Version #1 November 16 th, 2005. DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST. You have 75 minutes
More informationPh.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program August 2017
Ph.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program August 2017 The time limit for this exam is four hours. The exam has four sections. Each section includes two questions.
More informationUniversity of Toronto Department of Economics ECO 204 Summer 2013 Ajaz Hussain TEST 1 SOLUTIONS GOOD LUCK!
University of Toronto Department of Economics ECO 204 Summer 2013 Ajaz Hussain TEST 1 SOLUTIONS TIME: 1 HOUR AND 50 MINUTES DO NOT HAVE A CELL PHONE ON YOUR DESK OR ON YOUR PERSON. ONLY AID ALLOWED: A
More informationLecture Demand Functions
Lecture 6.1 - Demand Functions 14.03 Spring 2003 1 The effect of price changes on Marshallian demand A simple change in the consumer s budget (i.e., an increase or decrease or I) involves a parallel shift
More informationEcon 101A Midterm 1 Th 28 February 2008.
Econ 0A Midterm Th 28 February 2008. You have approximately hour and 20 minutes to answer the questions in the midterm. Dan and Mariana will collect the exams at.00 sharp. Show your work, and good luck!
More information14.03 Fall 2004 Problem Set 2 Solutions
14.0 Fall 004 Problem Set Solutions October, 004 1 Indirect utility function and expenditure function Let U = x 1 y be the utility function where x and y are two goods. Denote p x and p y as respectively
More informationp 1 _ x 1 (p 1 _, p 2, I ) x 1 X 1 X 2
Today we will cover some basic concepts that we touched on last week in a more quantitative manner. will start with the basic concepts then give specific mathematical examples of the concepts. f time permits
More informationSolutions to Midterm Exam. ECON Financial Economics Boston College, Department of Economics Spring Tuesday, March 19, 10:30-11:45am
Solutions to Midterm Exam ECON 33790 - Financial Economics Peter Ireland Boston College, Department of Economics Spring 209 Tuesday, March 9, 0:30 - :5am. Profit Maximization With the production function
More informationPractice Problems: First-Year M. Phil Microeconomics, Consumer and Producer Theory Vincent P. Crawford, University of Oxford Michaelmas Term 2010
Practice Problems: First-Year M. Phil Microeconomics, Consumer and Producer Theory Vincent P. Crawford, University of Oxford Michaelmas Term 2010 Problems from Mas-Colell, Whinston, and Green, Microeconomic
More informationMicroeconomics of Banking: Lecture 2
Microeconomics of Banking: Lecture 2 Prof. Ronaldo CARPIO September 25, 2015 A Brief Look at General Equilibrium Asset Pricing Last week, we saw a general equilibrium model in which banks were irrelevant.
More informationECON 311 Winter Quarter, 2010 NAME: KEY Prof. Hamilton
ECON 311 Winter Quarter, 2010 NAME: KEY Prof. Hamilton FINAL EXAM 200 points 1. (30 points). A firm produces rubber gaskets using labor, L, and capital, K, according to a production function Q = f(l,k).
More informationMicroeconomics, IB and IBP. Regular EXAM, December 2011 Open book, 4 hours
Microeconomics, IB and IBP Regular EXAM, December 2011 Open book, 4 hours There are two pages in this exam. In total, there are six questions in the exam. The questions are organized into four sections.
More information(Note: Please label your diagram clearly.) Answer: Denote by Q p and Q m the quantity of pizzas and movies respectively.
1. Suppose the consumer has a utility function U(Q x, Q y ) = Q x Q y, where Q x and Q y are the quantity of good x and quantity of good y respectively. Assume his income is I and the prices of the two
More informationx 1 = m 2p p 2 2p 1 x 2 = m + 2p 1 10p 2 2p 2
In the previous chapter, you found the commodity bundle that a consumer with a given utility function would choose in a specific price-income situation. In this chapter, we take this idea a step further.
More information1. [March 6] You have an income of $40 to spend on two commodities. Commodity 1 costs $10 per unit and commodity 2 costs $5 per unit.
Spring 0 0 / IA 350, Intermediate Microeconomics / Problem Set. [March 6] You have an income of $40 to spend on two commodities. Commodity costs $0 per unit and commodity costs $5 per unit. a. Write down
More information(0.50, 2.75) (0,3) Equivalent Variation Compensating Variation
1. c(w 1, w 2, y) is the firm s cost function for processing y transactions when the wage of factor 1 is w 1 and the wage of factor 2 is w 2. Find the cost functions for the following firms: (10 Points)
More informationMassachusetts Institute of Technology Department of Economics Principles of Microeconomics Final Exam Wednesday, October 10th, 2007
Page 1 of 7 Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Final Exam Wednesday, October 10th, 2007 Last Name (Please print): First Name: MIT ID Number:
More informationLecture 7. The consumer s problem(s) Randall Romero Aguilar, PhD I Semestre 2018 Last updated: April 28, 2018
Lecture 7 The consumer s problem(s) Randall Romero Aguilar, PhD I Semestre 2018 Last updated: April 28, 2018 Universidad de Costa Rica EC3201 - Teoría Macroeconómica 2 Table of contents 1. Introducing
More informationLecture 10: Two-Period Model
Lecture 10: Two-Period Model Consumer s consumption/savings decision responses of consumer to changes in income and interest rates. Government budget deficits and the Ricardian Equivalence Theorem. Budget
More informationProblem 1 / 25 Problem 2 / 15 Problem 3 / 15 Problem 4 / 20 Problem 5 / 25 TOTAL / 100
Department of Applied Economics Johns Hopkins University Economics 602 Macroeconomic Theory and Policy Final Exam Professor Sanjay Chugh Fall 2009 December 14, 2009 NAME: The Exam has a total of five (5)
More informationChoice. A. Optimal choice 1. move along the budget line until preferred set doesn t cross the budget set. Figure 5.1.
Choice 2 Choice A. choice. move along the budget line until preferred set doesn t cross the budget set. Figure 5.. choice * 2 * Figure 5. 2. note that tangency occurs at optimal point necessary condition
More informationEconomics 101A Spring A Revised Version of the Slutsky Equation Using the Expenditure Function or, the expenditure function is our friend!
Brief review... Economics 11A Spring 25 A Revised Version of the Slutsky Equation Using the Expenditure Function or, the expenditure function is our friend! e(p 1, u ) = min p 1 + p 2 x 2 s.t. U(, x 2
More informationProblem Set #2. Intermediate Macroeconomics 101 Due 20/8/12
Problem Set #2 Intermediate Macroeconomics 101 Due 20/8/12 Question 1. (Ch3. Q9) The paradox of saving revisited You should be able to complete this question without doing any algebra, although you may
More informationSolutions to Problem Set 1
Solutions to Problem Set Theory of Banking - Academic Year 06-7 Maria Bachelet maria.jua.bachelet@gmail.com February 4, 07 Exercise. An individual consumer has an income stream (Y 0, Y ) and can borrow
More informationECON 2001: Intermediate Microeconomics
ECON 2001: Intermediate Microeconomics Coursework exercises Term 1 2008 Tutorial 1: Budget constraints and preferences (Not to be submitted) 1. Are the following statements true or false? Briefly justify
More informationLecture 4 - Utility Maximization
Lecture 4 - Utility Maximization David Autor, MIT and NBER 1 1 Roadmap: Theory of consumer choice This figure shows you each of the building blocks of consumer theory that we ll explore in the next few
More informationIf Tom's utility function is given by U(F, S) = FS, graph the indifference curves that correspond to 1, 2, 3, and 4 utils, respectively.
CHAPTER 3 APPENDIX THE UTILITY FUNCTION APPROACH TO THE CONSUMER BUDGETING PROBLEM The Utility-Function Approach to Consumer Choice Finding the highest attainable indifference curve on a budget constraint
More informationAS/ECON 4070 AF Answers to Assignment 1 October 2001
AS/ECON 4070 AF Answers to Assignment 1 October 2001 1. Yes, the allocation will be efficient, since the tax in this question is a tax on the value of people s endowments. This is a lump sum tax. In an
More informationHomework 1 Solutions
Homework 1 Solutions ECON 5332 Government, Taxes, and Business Strategy Spring 28 January 22, 28 1. Consider an income guarantee program with an income guarantee of $3 and a benefit reduction rate of 5
More information1 Two Period Exchange Economy
University of British Columbia Department of Economics, Macroeconomics (Econ 502) Prof. Amartya Lahiri Handout # 2 1 Two Period Exchange Economy We shall start our exploration of dynamic economies with
More informationd. Find a competitive equilibrium for this economy. Is the allocation Pareto efficient? Are there any other competitive equilibrium allocations?
Answers to Microeconomics Prelim of August 7, 0. Consider an individual faced with two job choices: she can either accept a position with a fixed annual salary of x > 0 which requires L x units of labor
More informationProblem 1 / 25 Problem 2 / 25 Problem 3 / 25 Problem 4 / 25
Department of Economics University of Maryland Economics 325 Intermediate Macroeconomic Analysis Final Exam Professor Sanjay Chugh Fall 2009 December 17, 2009 NAME: The Exam has a total of four (4) problems
More informationECONOMICS 100A: MICROECONOMICS
ECONOMICS 100A: MICROECONOMICS Summer Session II 2011 Tues, Thur 8:00-10:50am Center Hall 214 Professor Mark Machina Office: Econ Bldg 217 Office Hrs: Tu/Th 11:30-1:30 TA: Michael Futch Office: Sequoyah
More information1 Multiple Choice (30 points)
1 Multiple Choice (30 points) Answer the following questions. You DO NOT need to justify your answer. 1. (6 Points) Consider an economy with two goods and two periods. Data are Good 1 p 1 t = 1 p 1 t+1
More informationDynamic Macroeconomics: Problem Set 2
Dynamic Macroeconomics: Problem Set 2 Universität Siegen Dynamic Macroeconomics 1 / 26 1 Two period model - Problem 1 2 Two period model with borrowing constraint - Problem 2 Dynamic Macroeconomics 2 /
More informationEconomics Honors Exam Review (Micro) Mar Based on Zhaoning Wang s final review packet for Ec 1010a, Fall 2013
Economics Honors Exam Review (Micro) Mar. 2017 Based on Zhaoning Wang s final review packet for Ec 1010a, Fall 201 1. The inverse demand function for apples is defined by the equation p = 214 5q, where
More informationECONOMICS 100A: MICROECONOMICS
ECONOMICS 100A: MICROECONOMICS Fall 2013 Tues, Thur 2:00-3:20pm Center Hall 101 Professor Mark Machina Office: Econ Bldg 217 Office Hrs: Wed 9am-1pm ( See other side for Section times & locations, and
More informationConsumption, Investment and the Fisher Separation Principle
Consumption, Investment and the Fisher Separation Principle Consumption with a Perfect Capital Market Consider a simple two-period world in which a single consumer must decide between consumption c 0 today
More informationFinal Examination December 14, Economics 5010 AF3.0 : Applied Microeconomics. time=2.5 hours
YORK UNIVERSITY Faculty of Graduate Studies Final Examination December 14, 2010 Economics 5010 AF3.0 : Applied Microeconomics S. Bucovetsky time=2.5 hours Do any 6 of the following 10 questions. All count
More informationLecture Note 7 Linking Compensated and Uncompensated Demand: Theory and Evidence. David Autor, MIT Department of Economics
Lecture Note 7 Linking Compensated and Uncompensated Demand: Theory and Evidence David Autor, MIT Department of Economics 1 1 Normal, Inferior and Giffen Goods The fact that the substitution effect is
More informationEconomics 2450A: Public Economics Section 1-2: Uncompensated and Compensated Elasticities; Static and Dynamic Labor Supply
Economics 2450A: Public Economics Section -2: Uncompensated and Compensated Elasticities; Static and Dynamic Labor Supply Matteo Paradisi September 3, 206 In today s section, we will briefly review the
More informationECO 301 MACROECONOMIC THEORY UNIVERSITY OF MIAMI DEPARTMENT OF ECONOMICS FALL 2008 Instructor: Dr. S. Nuray Akin MIDTERM EXAM I
ECO 301 MACROECONOMIC THEORY UNIVERSITY OF MIAMI DEPARTMENT OF ECONOMICS FALL 2008 Instructor: Dr. S. Nuray Akin MIDTERM EXAM I Name: Section: Instructions: This exam consists of 6 pages; please check
More informationSection 2 Solutions. Econ 50 - Stanford University - Winter Quarter 2015/16. January 22, Solve the following utility maximization problem:
Section 2 Solutions Econ 50 - Stanford University - Winter Quarter 2015/16 January 22, 2016 Exercise 1: Quasilinear Utility Function Solve the following utility maximization problem: max x,y { x + y} s.t.
More informationLecture 2 General Equilibrium Models: Finite Period Economies
Lecture 2 General Equilibrium Models: Finite Period Economies Introduction In macroeconomics, we study the behavior of economy-wide aggregates e.g. GDP, savings, investment, employment and so on - and
More informationAnswers to June 11, 2012 Microeconomics Prelim
Answers to June, Microeconomics Prelim. Consider an economy with two consumers, and. Each consumer consumes only grapes and wine and can use grapes as an input to produce wine. Grapes used as input cannot
More informationMIDTERM EXAM ANSWERS
MIDTERM EXAM ANSWERS ECON 10 PROFESSOR GUSE Instructions. You have 3 hours to complete the exam. There are a total of 75 points on the exam. The exam is designed to take about 1 minute per point. You are
More informationAnswers to Microeconomics Prelim of August 24, In practice, firms often price their products by marking up a fixed percentage over (average)
Answers to Microeconomics Prelim of August 24, 2016 1. In practice, firms often price their products by marking up a fixed percentage over (average) cost. To investigate the consequences of markup pricing,
More informationConsumers cannot afford all the goods and services they desire. Consumers are limited by their income and the prices of goods.
Budget Constraint: Review Consumers cannot afford all the goods and services they desire. Consumers are limited by their income and the prices of goods. Model Assumption: Consumers spend all their income
More informationMath: Deriving supply and demand curves
Chapter 0 Math: Deriving supply and demand curves At a basic level, individual supply and demand curves come from individual optimization: if at price p an individual or firm is willing to buy or sell
More informationEconomics 101. Lecture 3 - Consumer Demand
Economics 101 Lecture 3 - Consumer Demand 1 Intro First, a note on wealth and endowment. Varian generally uses wealth (m) instead of endowment. Ultimately, these two are equivalent. Given prices p, if
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Preliminary Examination: Macroeconomics Fall, 2009
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Preliminary Examination: Macroeconomics Fall, 2009 Instructions: Read the questions carefully and make sure to show your work. You
More informationMicroeconomics Review in a Two Good World
Economics 131 ection Notes GI: David Albouy Microeconomics Review in a Two Good World Note: These notes are not meant to be a substitute for attending section. It may in fact be difficult to understand
More informationHomework 1 Due February 10, 2009 Chapters 1-4, and 18-24
Homework Due February 0, 2009 Chapters -4, and 8-24 Make sure your graphs are scaled and labeled correctly. Note important points on the graphs and label them. Also be sure to label the axis on all of
More informationEconomics 386-A1. Practice Assignment 3. S Landon Fall 2003
Economics 386-A1 Practice Assignment 3 S Landon Fall 003 This assignment will not be graded. Answers will be made available on the Economics 386 web page: http://www.arts.ualberta.ca/~econweb/landon/e38603.html.
More informationECO 100Y L0101 INTRODUCTION TO ECONOMICS. Midterm Test #2
Department of Economics Prof. Gustavo Indart University of Toronto December 3, 2004 SOLUTIONS ECO 100Y L0101 INTRODUCTION TO ECONOMICS Midterm Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS:
More informationPh.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program June 2017
Ph.D. Preliminary Examination MICROECONOMIC THEORY Applied Economics Graduate Program June 2017 The time limit for this exam is four hours. The exam has four sections. Each section includes two questions.
More information14.02 Principles of Macroeconomics Solutions to Problem Set # 2
4.02 Principles of Macroeconomics Solutions to Problem Set # 2 September 25, 2009 True/False/Uncertain [20 points] Please state whether each of the following claims are True, False or Uncertain, and provide
More informationIntermediate Macroeconomics
Intermediate Macroeconomics Lecture 12 - A dynamic micro-founded macro model Zsófia L. Bárány Sciences Po 2014 April Overview A closed economy two-period general equilibrium macroeconomic model: households
More informationMathematical Economics dr Wioletta Nowak. Lecture 1
Mathematical Economics dr Wioletta Nowak Lecture 1 Syllabus Mathematical Theory of Demand Utility Maximization Problem Expenditure Minimization Problem Mathematical Theory of Production Profit Maximization
More informationIntermediate Micro HW 2
Intermediate Micro HW June 3, 06 Leontief & Substitution An individual has Leontief preferences over goods x and x He starts ith income y and the to goods have respective prices p and p The price of good
More informationMathematical Economics dr Wioletta Nowak. Lecture 2
Mathematical Economics dr Wioletta Nowak Lecture 2 The Utility Function, Examples of Utility Functions: Normal Good, Perfect Substitutes, Perfect Complements, The Quasilinear and Homothetic Utility Functions,
More informationECONOMICS 422 MIDTERM EXAM 1 R. W. Parks Autumn (25) Josephine lives in a two period Fisherian world. Her utility function for 2
NAME: ECONOMICS 422 MIDTERM EXAM 1 R. W. Parks Autumn 1995 Answer all questions on the examination sheets. Weights are given in parentheses. In general you should try to show your work. If you only present
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Fall, 2016
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Fall, 2016 Section 1. (Suggested Time: 45 Minutes) For 3 of the following 6 statements, state
More informationGraphs Details Math Examples Using data Tax example. Decision. Intermediate Micro. Lecture 5. Chapter 5 of Varian
Decision Intermediate Micro Lecture 5 Chapter 5 of Varian Decision-making Now have tools to model decision-making Set of options At-least-as-good sets Mathematical tools to calculate exact answer Problem
More informationExogenous variables are determined outside a macroeconomic model. Figure 5.1 A Model Takes Exogenous Variables and Determines Endogenous Variables
Chapter 5 A Closed-Economy One-Period Macroeconomic Model What is a model used for? Exogenous variables are determined outside a macroeconomic model. Figure 5.1 A Model Takes Exogenous Variables and Determines
More informationINTRODUCTORY ECONOMICS
FIRST PUBLIC EXAMINATION Preliminary Examination for Philosophy, Politics and Economics Preliminary Examination for Economics and Management INTRODUCTORY ECONOMICS LONG VACATION 2013 Monday 9th September
More informationChapter 1 Microeconomics of Consumer Theory
Chapter Microeconomics of Consumer Theory The two broad categories of decision-makers in an economy are consumers and firms. Each individual in each of these groups makes its decisions in order to achieve
More informationEco 300 Intermediate Micro
Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 27 Review of
More informationEconomics 121b: Intermediate Microeconomics Final Exam Suggested Solutions
Dirk Bergemann Department of Economics Yale University Economics 121b: Intermediate Microeconomics Final Exam Suggested Solutions 1. Both moral hazard and adverse selection are products of asymmetric information,
More informationDepartment of Economics ECO 204 Microeconomic Theory for Commerce (Ajaz) Test 2 Solutions
Department of Economics ECO 204 Microeconomic Theory for Commerce 2016-2017 (Ajaz) Test 2 Solutions YOU MAY USE A EITHER A PEN OR A PENCIL TO ANSWER QUESTIONS PLEASE ENTER THE FOLLOWING INFORMATION LAST
More informationTHEORETICAL TOOLS OF PUBLIC FINANCE
Solutions and Activities for CHAPTER 2 THEORETICAL TOOLS OF PUBLIC FINANCE Questions and Problems 1. The price of a bus trip is $1 and the price of a gallon of gas (at the time of this writing!) is $3.
More informationECO361: LABOR ECONOMICS FIRST MIDTERM EXAMINATION OCTOBER 12, Prof. Bill Even DIRECTIONS.
Name ECO6: LABOR ECONOMICS FIRST MIDTERM EXAMINATION OCTOBER, 004 Prof. Bill Even DIRECTIONS. The exam contains a mix of short answer and essay questions. Your answers to the 7 short answer portion of
More informationIntroductory Microeconomics (ES10001)
Topic 2: Household ehaviour Introductory Microeconomics (ES11) Topic 2: Consumer Theory Exercise 4: Suggested Solutions 1. Which of the following statements is not valid? utility maximising consumer chooses
More informationLecture 4: Consumer Choice
Lecture 4: Consumer Choice September 18, 2018 Overview Course Administration Ripped from the Headlines Consumer Preferences and Utility Indifference Curves Income and the Budget Constraint Making a Choice
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Spring Semester
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2015 16 Spring Semester ECON101 Introduction to Economics I Second Midterm Exam Duration: 90 minutes Type A 23
More informationWrite your name: UNIVERSITY OF WASHINGTON Department of Economics
Write your name: UNIVERSITY OF WASHINGTON Department of Economics Economics 200, Fall 2008 Instructor: Scott First Hour Examination ***Use Brief Answers (making the key points) & Label All Graphs Completely
More information