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Econ_55D_Final_Exam

Econ_55D_Final_Exam - ECON 55D Fall 2007 Professor Paul...

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Your Name: ECON 55D Fall 2007 Professor Paul Rothstein Your Discussion Section: Final Exam December 13, 2007 Please: 1. Answer all questions in the space provided (including the sheet following each question). Feel free to use the back of each sheet if you need to, but it helps the graders if you use the front sides as much as possible. 2. Put your name (legibly) on each sheet of the exam in the space provided. 3. Note that there are nine problems and forty questions. Each question is worth 4 points for purposes of computing a raw exam score. The raw score will be proportionately adjusted so the total possible number of points is 135. 4. The questions vary considerably in their degree of difficulty. Be sure to answer the easy ones as well as the hard ones. You may want to look over the entire exam right now to help you allocate your time. 5. Do not use assumptions inconsistent with the framework of a problem. 6. Before starting the exam, you must sign the following statement: I pledge to obey the Duke University Honor Code during this exam. Signed: 1
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Your Name: 1. Your preferences are defined over shoes and socks. You are going to the shoe store, which sells both shoes and socks. Every pair of shoes is $10 and every pair of socks is $5. You have $50. (a) Since it is fashionable to wear footware without socks, let’s assume that socks are non- essential for you. With socks on the y -axis and footware on the x -axis, draw your budget constraint and optimal bundle. Draw at least three indifference curves. (Assume that socks and footware are not perfect substitutes and tastes are convex.) (b) At the shoe store you meet your unfashionable friend, Tom Wolfe. Both shoes and socks are essential for Tom. He also has homothetic preferences. Illustrate Tom’s optimal bundle if he has $50, like you, and also if he has $100. (c) Let’s suppose Tom has a coupon that let’s him buy shoes for half price after he has bought two pairs. Draw Tom’s new budget constraint accurately . (d) Suppose Tom’s optimal bundle without the coupon is 1 pair of shoes and 8 pairs of socks. Can you tell what his new optimal bundle will be after the coupon? Explain! (e) Suppose Tom’s optimal bundle prior to the coupon was 3 pairs of shoes and 4 pairs of socks. Illustrate this optimum. Now draw the new budget constraint with the coupon and also indicate a possible new optimum (recall that preferences are homothetic). (f) (Continues the previous problem). What can we say about Tom’s consumption of shoes with the coupon (increases/decreases/cannot say)? What can we say about Tom’s con- sumption of socks with the coupon (increases/decreases/cannot say)? 2
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Your Name: 4
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Your Name: 2. Steve is an artist who is learning to draw on a computer. He has 8 leisure hours a day that he can use towards drawing. There are currently two computer models available to Steve, the Etch-A-Sketch and the Pineapple.
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