MT 1 Old - ECON 100A ECONOMIC ANALYSIS MICRO Department of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON 100A: ECONOMIC ANALYSIS - MICRO Department of Economics University of California, Berkeley Spring 2009 Midterm Exam 1 3/5/09 GENERAL INSTRUCTIONS: Write your name and your official GSI’s name on the front cover of two blue books. Mark one blue book as #1 and the other #2. The exam has 3 parts: put PARTS I and II in blue book #1 and PART III in blue book #2. There is a total of 100 points. Make sure to put all of your answers in the bluebooks and label your graphs well for full credit. PART I: DEFINITIONS (a total of 16 points - 8 pts each) For each term, provide a concise definition (a few sentences each). Use a diagram to illustrate your definition if specified. 1. A normal good, an inferior good, and a giffen good. Discuss the difference between them. Diagrams are not required. A normal good is a good that a consumer purchases more of when income rises. On the other hand, an inferior good and a giffen good are goods that a consumer purchases less of when income rises. Alternatively, you can say that a normal good has a positive income effect (or an upward sloping Engel curve) and that both an inferior good and a giffen good have negative income effects (or downward sloping Engel curves). The difference between inferior and giffen goods is the magnitude of the income effect relative to the substitution effect. A demand curve for a giffen good slopes upward because the (negative) income effect dominates the substitution effect. A demand for an inferior good slopes downward because the (negative) income effect is smaller than the substitution effect. 2. An actuarially fair premium and a risk premium. Use a diagram to illustrate your definitions for a risk averse individual.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
An actuarially fair premium is an insurance premium that is equal to the expected payout. A risk premium is the amount of money a risk averse individual is willing to pay over the actuarially fair premium to avoid risks. PART II: TRUE OR FALSE AND EXPLAIN (a total of 24 points
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

MT 1 Old - ECON 100A ECONOMIC ANALYSIS MICRO Department of...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online