econ100a spr07 midterm1 answer key

econ100a spr07 midterm1 answer key - 1. (5 min.) It...

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Unformatted text preview: 1. (5 min.) It violates our theory of consumer behavior if indifference curve cross. Explain why. ‘11.. L . ’4 > 5 {Jr0r”0'{m.f( {.I‘ g/ D‘NC [4/1/(1/1/8 J‘A 0 A “'9' "In. H} {'11. I: {v 3..“ '-I/ E: on n ? 1 /A- K‘- b H x z 5.:— . - "" ‘x 'I“ “MMH ’5 ":[..:?.X’N [Or/ow: r? .r _“————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, ( Mar-f w" :3 E m: :«s '3 L) Ayn )r E I’f’dfii‘rfl" /; (HMS ,uc, ,f, Fryf'fi/L} \ \ ,_ . -' L L / r (9-1039). (Airy/Q ffié.“ xii/r. /{ r-‘f’f' 71' L h (I 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 (33-3. 3:3) = (60. 30). Please put m on the horizontal axis. and 2:3 on the vertical axis. 0A {Join-k (€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 Ucwfl): 2:353 :: [Uumjfl : [1/253 my em... a momma Meet/MW" 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 Zr-afw 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) = $1932. Illustrate mathematically that these preferences exhibit diminishing marginal rate of substitution. Pmagffflca hex/e 45m,»er MRS If *5, CID/(firmer lll$lwrl//M41 . {V6 Z? - ‘_1/€6S. 9’741- /<:$S 03C 3 @‘le 'l/l Fotlkm 7B!“ .moffi Io)? 'lhe"‘07lher‘ 736 M mesa MAI/e marlin/80434:} 1&9ij aw/zfi m? ‘(gm/Awi/ {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] W 5‘96? 3:. l \ N\ m .1 X) ’ P. T O \ QI'Lip J _, ._ w ,, 2 l Tm“ '4‘- N“R7€«*Pn, r 0 —~ (3) <3}. ...
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econ100a spr07 midterm1 answer key - 1. (5 min.) It...

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