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e1_313_f05

e1_313_f05 - Economics 313 Fall 2005 PRELIM 1 J Wissink...

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Economics 313 - Fall 2005 – PRELIM 1 - J. Wissink – Monday Oct. 3 Directions: Answer all questions. Write legibly, concisely, and coherently. Be sure to label all axes, functions, and variables you use. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. Show all your work! Total time for the test is 50 minutes. Total points on test = 100 Part I. Short essay: Answer the following three questions for 15 points each. 1. Alfie consumes only X and Y and part of his indifference curve map is illustrated below. a. Write down a utility function that would be an acceptable representation of his preferences. b. Reproduce the diagram in your exam booklet and illustrate an optimal bundle for Alfie assuming that Px=\$1 and Py=\$1 and Income=\$6.00. Add or subtract any lines/curves you need. c. In general, i.e., for any values of Px, Py and I, what is the function for the optimal amount of X in Alfie’s utility maximizing bundle? That is, what is Alfie’s demand function for X? 2. Suppose Marc gets utility from only X and Y. His “Slutsky Equations” are thus: (Note: M refers to the market/Marshallian demand responses where SSE refers to the Slutsky/compensated substitution effect responses.

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