Economics 2152A/B Study Guide - Midterm Guide: Budget Constraint, Market Clearing, Discounting

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26 Apr 2014
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These are meant to give you some practice as you prepare for midterm 2. Your solutions to these problems will not be graded. Lecture notes 15 (november 5) will have detail on the material you need to cover for midterm 2: long-run changes in productivity (20 pts) The representative consumer has preferences de(cid:133)ned over bundles of consumption and leisure (c; l) and chooses a bundle that is a ordable and that maximizes utility. The consumer earns labor income and receives dividend payments from the (cid:133)rm. The (cid:133)rm uses capital (k) and labor (n ) to produce goods according to the. Make sure you label the two goods produced in this economy on the x-axis and the y-axis of your graph. Do not mark an optimal bundle on the graph. (d). (6 points) on the same graph, illustrate how the production possibilities frontier changes when productivity (z) increases.