ECON 500 Midterm: ECON 500 UIUC mid07fa
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All questions must be answered on this test form! For each question you must show your work and (or) provide a clear argument. If you need scratch paper, use the last pages and the back of the form. Question 1 a utility function is given by u(x1, x2) = x1 x2. Originally, prices are p1 = p2 = 1 and wealth is w = 360 but increase to p1 = 4 and p2 = 9. The equivalent variation is given by ev = (recall that e(p, u) = 2 up1 p2. ) Question 2 suppose that an expenditure function is given by e(p1, p2, u) = p1u2. Specify two di erent utility functions that generate this expenditure function. One of the utility functions must be convex and monotone. The quasiconcave & monotone utility function is u(x1, x2) = The other utility function is u(x1, x2) =
