Econ808mid.01

Econ808mid.01 - The Ohio State University Department of...

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The Ohio State University Department of Economics Econ 808 Midterm Profs Levin, Morelli, and Peck Spring 2001 Directions: Answer all questions and show all work. There are two questions on part 1, and one question on part 2. Each question is worth 33 points. Part 1 1. Consider an exchange economy with 2 consumers and one consumption good per state. Both consumers have the (Bernoulli) utility function over certain consumption, u i ( x i )=log( x i ) ; and are von Neumann-Morgenstern expected utility maximizers. Each con- sumer has an initial wealth of 2, which is his/her endowment in states where he/she does not have an accident. For those states in which a consumer is involved in an accident, he/she loses 1 unit of wealth, so his/her endowment is 1. With probability 1 2 , there are no accidents. With probability 1 2 ,consumer 1 is involved in an accident. (Thus, consumer 1 is involved in all accidents.) Conditional on consumer 1 having an accident, he crashes into a tree with probability 1 2
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Econ808mid.01 - The Ohio State University Department of...

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