Exam 1 - Take Home Component

# Exam 1 - Take Home Component - x and y 2 ±ind the...

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Midterm Exam Eco 701 - Fall 2009 Take Home Question General Instructions: Please answer the following questions thor- oughly and neatly on a nice sheet of paper. SpeciFc instructions: 1. You are to work on this problem independently. Do not work on this with others in the class or otherwise ask anyone for help with these problems. This sort of collaboration will be deemed to be cheating and you will receive a failing grade in the course if caught. 2. You may, however, consult any other sources you like (web, text, etc.) in doing the problem. 3. Hand in your completed take-home problem with your in-class exam next Tuesday. A consumer has utility function: U = 2( x - 1)( y - 2) (1) 1. ±ind the consumer’s demand functions for goods
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Unformatted text preview: x and y . 2. ±ind the consumer’s indirect utility function and expenditure function. 3. Suppose that initially, I = 10, p x = 2, and p y = 1, and suppose that the price of good x , p x , increases to 3. (a) Describe how the consumer’s total expenditures on good x change as a result of the price increase. (b) ±ind the compensating variation and the equivalent variation re-sulting from this price change. 4. Consider once again the prices I = 10, p x = 2, and p y = 1. Use the Slutsky equation to come up with an estimate of the magnitude of the substitution and income e²ects due to a change in the price of good x at this particular point. 1...
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## This note was uploaded on 11/12/2009 for the course ECONOMICS 701 taught by Professor Baker during the Spring '09 term at CUNY Hunter.

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