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Unformatted text preview: 1. (5 min.) It violates our theory of consumer behavior if indifference curve cross. Explain why.
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_“————H’_— ‘h' 1‘]. 2. (5 min) Britny mnsumes two items. Slushies (a good) and dirty diapers (a bad).
Explain why Britny violates one of our assmnptions of L'Vefi—Behaved meemnccs. then
explain how we can approach Britny's choiae problem a little differently so that we can treat her preferences as satisfying this assumption. ‘7 Wm. 5 mm '1‘)» . , , rt, ( Marf w" :3 E m: :«s '3
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a! f n ‘ \III I 3. (5 min) Apricots usually cost $2 and beans usually cost $2. Adam has income 1?: = $20.
Apricots are on sale for $1. but the store limits them to l per customer. If you want to buy more than J. you have to pay full price for each apricot past the 4th. Draw Adam's
budget constraint for apricots and beans. 4. (5 min) Professor Pelly Con is teaching Geometry. She is giving 3 exams. but says the
students can (imp their lowest score. That grades will be determined on only the two
highest scores. On the ﬁrst exam. Cliff scored 40. Let 3:3 be the score on exam 2 and 3:; be
the score on exam 3. Draw Cliff's indifference curve through the point (333. 3:3) = (60. 30).
Please put m on the horizontal axis. and 2:3 on the vertical axis. 0A {Joink (€030)_ 19x2 0V9va).‘ ?5 60mm — loo ..
’1 f ’i‘ '3;an l EVEN/M1 5. (5 min} Betty and Carla are identical twin sister's—they always like all of the same
things. that is. they have identical preferences. But Betty has utility function Lust. 3;) =
xl/zyl/g while Carla has utility function Uc(x.y) = x3y3. How can they have the same
preferences even if they have different utility functions? 6 I I2 I
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OF 9A0“ O‘H'er 6. (5 min) James Bond only drinks Martinis with 5 ounces of gin per 1 ounce of vermouth
(shaken. not stirred). Let p] be the price of gin and p; be the price of vennouth. per
ounce. Since his assignment is done. James will be spending all his money m on Martinis.
What is his demand function for gin? Jdmes {30W} has LQOVYCFE'F W5”? (Ffr‘Fec't
(Om/D/emen‘f case. )
U = minf‘ézu 1:] Wm Zrafw xzwerw‘ﬁl" We MM“) M 141i Sam—Ham "$2: = x1. I
I‘D/L43 It into , baa/jet cows‘tmiwt ﬂiz+gzz=m 1 1:}: ﬁrm ELL/3% zm [ﬂeéajz.=m C"! T. (5 min) Darrel‘s Marginal Utilities are MU1 = x2 + 10 and HUB = 1‘] +1. He is
currently consuming .12} = 9 and x2 = 8. Prices are p1 = 4 and p3 = 2. ls Darrel behaving
optimally? Should he increase or decrease his consumption of 3:] to increase his utility?
Answer this without solving for demands. (Us know Q‘l o’LﬁLl/Vla/ COﬂSMM/jyéb'q
handle MU; _ @ anew/3, ————~» as r pl P3. M“; T}: f“ ll“? 595‘: XJHO 4 __ 1
lerl El: ‘40 (Ci/3) R) mole/$119,; ”. old 6!
gm) H3 and he. gl :4 amass Clams/rail} 2T]— X' ('A'lcl M76396 YA , S. (5 min) Explain what it means for preferences to have diminishing marginal rate of
substitution. Lester has utility function u(.r1.m2) = $1932. Illustrate mathematically that these preferences exhibit diminishing marginal rate of substitution. Pmagffﬂca hex/e 45m,»er MRS If *5, CID/(ﬁrmer
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{ﬁddle/Mm 104th [Dumaeg (0F a Cock ‘ 9. (10 min) A consumer has the utility function u(x1, 3:2) = 331.702 + .732 and the budget
constraint 121931 + 212.752 = m. Use the Lagrangian method to set up and solve for the
demand functions for both 931 and 332. Be carful to ShOW all your work. : ;{‘7(2+7{L'+“ )CW‘*FIXv “(311]
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 Spring '08
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 Microeconomics

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