ECON 601 Midterm: ECON 601 Iowa State Econ601Midterm2Fall11
Document Summary
Answer any three questions: answer all parts. (a) (revealed preference) assume the weak axiom of revealed preference (warp) is known to hold. In a two good world, the person is observed to choose consumption vector vector p p p p . , and is also observed to choose is revealed preferred to x x . Can there ever be a situation (a price vector) where the consumption vector x x . In a three good world, does warp imply that if consumption vector. Bx is revealed preferred to cx , then cx can never be revealed preferred to. Explain. (3 points) (b) (compensating and equivalent variations). Assuming an interior solution, his hicksian and marshallian demands for goods 1 and 2 are: As usual, u denotes utility, w income, and. 2,1,8,8 ; w a p p p p p. 1. 5,8,8,8 b p ip the price of good i.
