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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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(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.
 Spring '07
 Clements
 Economics

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