ECON 11 Study Guide - Midterm Guide: Engel Curve, Hicksian Demand Function, Expenditure Function
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Economics 11: practice first midterm - version b. 2 (a) derive the mrs. (b) show that preferences are convex. Given any two cars, i always prefer the one that is bigger and faster. Assume that preferences satisfy the usual axioms (transitivity, completeness and continuity). Question 4 (a) de ne the expenditure function (either mathematically or in words). (b) intuitively explain why the expenditure function is concave in prices. Question 5 (a) de ne an inferior good. (b) an agent consumes two goods and always spends all her income. The prices of the goods are p1 = 1 and p2 = 1. Note: for this question, you may nd the quadratic formula useful. If ax2 + bx + c = 0 then x : hicksian demand (25 points) The prices of the goods are (p1, p2). (a) set up the expenditure minimisation problem. (b) derive the agent"s hicksian demands. (c) derive the agent"s expenditure function: choice with satiation (25 points)
