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s08 prelim 1 questions

s08 prelim 1 questions - PRELIM 1 ECON 335 Cornell...

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PRELIM 1- ECON 335 - Cornell University - J. Wissink – Spring 2008 – February 27 Directions: Write legibly, concisely, & coherently. Label all axes, functions, & variables you use. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. MAKE SURE YOU DO ALL PARTS OF EACH QUESTION. Total time for the test is 75 minutes. Total points on exam = 100. ____________________________________________________________________________ 1. Consider a world in which the only good is “\$ of money”. Suppose there are two representative types of people in this economy, rich and poor. The utility function of the typical rich person is: u Rich type = u(I i ), and the utility function of the typical poor person is: w Poor type = w(I i ), where I i indicates how much income the individual gets. a. (8) Consider the Benthamite-utilitarian social welfare function and the Rawlsian social welfare function. Which one of these two is more consistent with a government that redistributes income from rich to poor, and why? b. (8) Describe and illustrate a kind of circumstance under which both the Benthamite-utilitarian and the Rawlsian would agree on the income redistribution policy. 2. Assume Abe and Betty both consume only two goods, X and G, where X is a purely private good such that X A + X B = X and G is a collective consumption good so that G A = G B = G. Suppose the aggregate economy wide PPF over X and G is typically shaped - nice and beautifully bowed-out. Put G on the horizontal and X on the vertical. Suppose Abe and Betty have the following utility functions : u Abe = min {X A , G} and u Betty = X B + 2G.

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s08 prelim 1 questions - PRELIM 1 ECON 335 Cornell...

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