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Unformatted text preview: Language American English Economics 302: Intermediate Microeconomics II Practice Questions 1. Consider a pure exchange economy with two identical consumers with standard convex pref—
erences. Consumer A has 10 units of good 1 and 4 units of good 2. Consumer B has 4 units
of good 1 and 10 units of good 2. Would we expect trade to occurr in this economy? Explain. What if both consumers have 7 units of both goods, would we expect trade to arise? Explain. 2. In a Robinson Crusoe oneproduct economy there are two goods, coconuts and leisure.
Suppose Robinson has symmetric convex preferences over the two goods leisure and coconuts.
That is, a sketch of the indifference curves over leisure and coconuts would entail a slope that
is equal to —1 on the 45" ray from the origin, steeper above this ray and ﬂatter below this ray.
Labour in this economy is simply the negative of leisure as far as preferences over labour and
coconuts. Suppose a standard concave production function G = f Is it possible in this
economy to have a competitive equilibrium in which wage rate is 3 times higher that the price of coconuts? Explain. 3. Now consider a twoeproduct two—person version of the Robinson Crusoe (and Friday) econ
omy. The two goods are ﬁsh and coconuts and each have the same technology: production
functions for ﬁsh and coconuts are identical concave functions. Suppose also that the prefer—
ences for Robinson Crusoe and Friday are identical and symmetric. (That is the slope of an
indifference curve over ﬁsh and coconuts equals —1 on the 450 ray, is steeper above the ray
and flatter below the ray.) Sketch these two production functions and provide a production
possibilities frontier consistent with your production functions. Suppose there is a competitive
equilibrium outcome in which the price of coconuts is equal to the price of ﬁsh. Show this
competitive equilibrium on a graph making sure to demonstrate proﬁt maximization in the
economy, and utility maximization by the consumers. Can we have a competitive equilibrium in this economy with the price of coconuts 2 times the price of ﬁsh? Explain. 3,0be ‘ LUVw db)“ ﬁ “.1 M hare {{ng (Ix/Wt ...
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 Spring '09
 IANIRVINE
 Economics, Microeconomics, Utility, Robinson Crusoe

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