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exam_one_f08

# exam_one_f08 - Coﬀee Bean on the vertical axis plot Uncle...

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Exam 1 Econ 100A, Fall 2008 Thomas Koch Write your name here: This test consists of two sections—15 multiple choice questions worth 1 point each, and a short-answer section worth 10 points. Fill out your Scantron with your name, perm number and test form. Partial credit will be awarded for the short answer section, so show all work . The points available per short-answer question are indicated at the beginning of each question. 1

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Part I: Short Answer Question 1 You are buying holiday gifts for your weird Uncle Milt. In particular, you will be buying him gift certificates to Starbucks and Coffee Bean. He likes to spend money at these two stores as if they are perfect complements. That is, his preferences can be expressed by the utility function: u coffee ( x ST , x CB ) = min { x ST , x CB } , where x ST is money spent at Starbucks, and x CB is money spent at Coffee Bean. 2 points With gift certificate value for Starbucks on the horizontal axis, and that for
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Unformatted text preview: Coﬀee Bean on the vertical axis, plot Uncle Milt’s indiﬀerence curves for coﬀee. • 2 points What mathematical relationship between x ST and x CB must hold for Uncle Milt to be optimizing his choice of coﬀee? 2 Question 2 Your weird Uncle Milt has grown unhappy with Starbucks. Because of this, he wants to spend (exactly) twice as much money at Coﬀee Bean as at Starbucks. • 2 points Draw his new indiﬀerence curves, with Starbucks coﬀee on the horizontal axis, and Coﬀee Bean coﬀee on the vertical axis. • 2 points What mathematical relationship between x ST and x CB must hold for Uncle Milt to be optimizing his consumption of coﬀee? • 2 points What is one possible utility function that represents Milt’s new preferences for coﬀee? 3...
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exam_one_f08 - Coﬀee Bean on the vertical axis plot Uncle...

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