Mid1_s07 - MIDTERM 1 Economics 420K Microeconomic Theory Instructions 1 Please write your name in the top right corner of every page of the exam

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MIDTERM 1 Economics 420K Spring 2007 Microeconomic Theory Oettinger Instructions: 1. Please write your name in the top right corner of every page of the exam, including this cover sheet. 2. The exam should have 6 pages, not including this cover sheet. If your exam is missing pages, please raise your hand. 3. Be concise in your answers but, for problems requiring mathematical manipulations to reach the answer, SHOW ENOUGH WORK SO THAT WE CAN SEE HOW YOU REACHED YOUR ANSWER. Indicate slopes and intercepts on all graphs. 4. The exam has 4 main questions. Each of these questions has several parts, with the later parts building on the earlier ones. Even if you can’t do one of the earlier parts, you may still use the information given in an early part to help answer a later part. 5. You have 75 minutes to complete the exam. Use your time wisely. Don’t spend too much time on any one (sub)question. 6. Good luck!
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1. (10 points) Ricky consumes cigars and other goods. The price of a cigar is $4. Other goods are measured in dollar units and therefore the price of other goods is $1 per unit. Ricky has $100 of income to spend each week. a. (3 points) Write an equation for Ricky’s weekly budget constraint and draw the budget constraint accurately, putting weekly cigar consumption on the horizontal axis. Be sure to indicate the intercepts and the slope of the budget constraint. b. (3 points) Suppose that the government decides to tax cigars to discourage cigar consumption but that, at the same time, each consumer is given a cash grant to reduce the utility loss from the tax. This policy increases the price of a cigar to $5 but gives Ricky $105 of income to spend each week.
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This note was uploaded on 11/01/2008 for the course ECON 420k taught by Professor Clements during the Spring '07 term at University of Texas at Austin.

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Mid1_s07 - MIDTERM 1 Economics 420K Microeconomic Theory Instructions 1 Please write your name in the top right corner of every page of the exam

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