ReviewFinal_spring05 - Economics 313-1 Talia Bar Final Examination Cornell University Spring 2005 This exam consists of three sections Answer each

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1 Economics 313-1 Cornell University Talia Bar Spring 2005 Final Examination This exam consists of three sections. Answer each section in a separate blue book and label each blue book clearly. The exam is worth 140 points. You will have 150 minutes (2.5 hours) to complete it. Allocate your time wisely between the sections. The exam is closed-book, but you may use a calculator. Good luck. Section I (50 points) Question 1 (30 points, 6 for each section) Kids Count After School program (KCA) has $5000 to spend on fruit (F) and a composite good (X). Prices of these two commodities are P F = $4, P X = $1. KCA has preferences for fruit and other stuff that can be represented by U(F,X) = 400lnF+X. The day care council is considering some ways to encourage consumption of fruit. (a) Find the bundle of fruit and other stuff that maximizes KCA = s utility function given the income and prices stated above. (b) Find the bundle that maximizes KCA = s utility function if the program is given a grant of $1000 which it can use as it whishes. Would this plan achieve the goal of the day care council? Explain why. (c) Find the bundle that maximizes KCA = s utility function if the day care council covers some of the cost of buying fruit for the program so that in effect the program faces prices P F = $2, P X = $1 (and income is $5000). (d) Find the bundle that maximizes KCA = s utility function if the day care council passes a new rule that requires KCA to purchase at least 150 units of F. Assume that KCA would abide to this rule and that the day care council can be sure they follow the rule without needing to spend any money making sure they follow it (prices and income as in part a). (e) Compare the results of the intervention described in parts (c) and (d) in terms of their effect on consumption of fruit, the effect on the after school program’s utility and the cost of implementation.
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2 Question 2 (20 points, 3 for sections (a),(b),(e),(f) and 4 for sections (c),(d)) In an exchange economy there are 2 individuals A and B, and two goods X and Y. Consumer A has an initial endowment of 5 units of good X and 5 units of good Y. Consumer B has an initial
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This test prep was uploaded on 02/23/2008 for the course ECON 3130 taught by Professor Masson during the Spring '06 term at Cornell University (Engineering School).

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ReviewFinal_spring05 - Economics 313-1 Talia Bar Final Examination Cornell University Spring 2005 This exam consists of three sections Answer each

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