answers-mock-mt1 - Economics 302 Silve Parviainen...

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Unformatted text preview: Economics 302 Silve Parviainen Intermediate Microeconomics Spring 2007 Answers to Mock Midterm I 1 Preferences (a) (2 , 1) (1 , 2) (2 , 2) ∼ (1 , 5) (2 , 4) ≺ (3 , 3) (4 , 0) ∼ (2 , 1) (b) u 2 and u 1 represent same preferences as u 2 = 1 2 u 1 u 3 does not represent same preferences as u 1 , since the relative weights of the two goods have changed. You can see this if you calculate the MRS for both functions: MRS 1 = x 2 + 1 x 1 6 = x 2 + 2 x 1 = MRS 3 . 2 Consumer Optimum I (a) c f is the minimum amount of food that the consumer must have to reach any positive level of utility. (b) Using the optimality condition we get MU f MU h = h f − 1 = p f p h = ⇒ p h h = p f ( f − 1) . Substituting p h h into the budget constraint yields p f ( f − 1) + p f f = I = ⇒ f = I + p f 2 p f and h = p f p h I + p f 2 p f − 1 = I − p f 2 p h . (c) Food is a necessary and housing a luxury good....
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This note was uploaded on 09/27/2008 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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answers-mock-mt1 - Economics 302 Silve Parviainen...

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