ECON 201 Study Guide - Midterm Guide: Reservation Price, College Town, Utility
24 Oct 2018
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Let all consumption choices be continuous: short problems - explain! No credit will be given without a justi(cid:12)cation of your answer (8 pts each: quasilinear preferences are strictly convex. Explain precisely, using a graph: students a, b, and c di er along the three dimensions (smart, funny, diligent). Professor z prefers a student over the other if he is better in (at least) two of those dimensions, while z is indi erent otherwise. Suppose a is moderately smart, not funny, and very diligent. B is very smart, moderately funny, and not diligent. Finally, c is not smart, very funny, and moderately diligent. Explain: mila"s preferences are described by the utility function u (x1; x2) = Use the substitution method to nd mila"s preferred consumption bundle when prices are p1 = 2 and p2 = 3. Explain your steps and illustrate your result, using a graph with u ((cid:1)) on the vertical axis: more about the apartment market in college town.
