ECON 2 Midterm: Economics 210A UCSB MidtermII2014

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ECON 2 Full Course Notes

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October, 1016: annie consumes two goods a and b. A write down an explicit utility function u (xa, xb) that has these properties. B describe the family of all utility functions with these properties. 2 (cid:17) 1(cid:19) where f is a strictly increasing function: hermoine consumes two goods a and b. A find hermoine"s marshallian demand functions for goods a and b. Her marshallian demand functions are and xa(p, m) = m pa + (papb)1/2 xb(p, m) = m pb + (papb)1/2 . Her indirect utility function is v(p, m) = pa + 2(papb)1/2 + pb m. B find hermoine"s hicksian demand functions for goods a and b, and also. B(p, u)(cid:17) u e(p, u) = (cid:16)paxah(p, u) + pbxh. C show that hermoine"s expenditure function is a constant elasticity of sub- stitution function of the prices. (this may take a bit of algebraic manipula- tion of the expression you found in part b. )

Related Questions

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

1. Suppose the price of x₁ is $20 and the price of x₂ is $4. If good x₁ is on the horizontal axis, what is the slope of the consumer's budget constraint?

a. -0.20

b. -0.25

c. -5.0

d. -0.2

e. -4.0

f. -20.0

2. Suppose the price of x1 is $5 and the price of x2 is $1 and Toni's income is $20. Suppose Toni gets a $5 gift card that can only be used for the purchase of x1 and there is no resale value of the gift card. With the gift card, the commodity bundle (1,20) is on Toni's budget constraint.

True

False

3. Tiffany's utility function is given by the formula U(x1, x2) = min{20x1, 10x2}. If x1 = x2, which commodity will have a greater marginal utility?

A. Both x1 and x2 have the same marginal utility

B. It is not possible to determine which commodity has higher marginal utility

C. x2

D. x1

4. For U(x₁,x₂) = 6x₁^1/3 + x₂, preferences are

a. consistent with diminishing marginal rate of substitution.

b. consistent with constant marginal rate of substitution.

c. consistent with increasing marginal rate of substitution.

d. not consistent with a utility function.

5. For a utility function of the form U(x₁,x₂)=min{5x₁,10x_2}, the individual will have excess x₂ for commodity bundles where

a. x2>2x1 b. x2>5x₁

c. x₂>0.5x₁ d. x2>10x₁

6. Matt enjoys Fuji and Gala apples and finds 1 Fuji apple to be just as good as 4 Gala apples.

a. Matt's preferences over Fuji (F) and Gala (G) apples can be represented by the utility function U(F,G)=0.25F+G

b. Matt's preferences over Fuji (F) and Gala (G) apples can be represented by the utility function U(F,G)=F+4G

c. Matt's preferences over Fuji (F) and Gala (G) apples can be represented by the utility function U(F,G)=4F+.25G

d. Matt's preferences over Fuji (F) and Gala (G) apples can be represented by the utility function U(F,G)=4F+G

e. Both A and B

f. Both C and D

amaranthelk637

True or False. If False explain why it's false.

1. If all prices are doubled an money income is the left the same, the budget set does not change because the relative prices do not change.

2. A decrease in income pivots the budget line around the bundle initially consumed.

3. If preferences are well-behaved, then for any commodity bundle (x1,x2), the set of commodity bundles that are worse than (x1,x2) is a convex set.

4. The marginal rate of substitution measures the distance betwee one indifference curve and the next one.

5. If someone has the utility function U= 2min(x, y), then x and y are perfect complements for that person.

6. At the boundary optimum, a consumers indifference curve must be tangent to her budget line.

7. If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

8. An Engel curve is a demand curve with the vertical and horizontal axes reversed.

9. An inferior good is less durable than a normal good.

10. When other variables are held fixed, the demand for a Giffen good rises when income increase.

ECON 2 Midterm: Economics 210A UCSB MidtermII2014

ECON 2 Full Course Notes

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