practice1 - Econ 100A : Intermediate Microeconomics Winter...

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Econ 100A : Intermediate Microeconomics Winter 2010 Practice Questions for Midterm. 1. Find the optimal bundle of x and y for the following: (a) U = 5 x + 3 y (b) U = ln x + 5 y (c) U = 5 x 1 = 2 y 1 = 3 2. Suppose we have the following utility function: U = ln x 1 + 3 ln x 2 Suppose income is given by m = 24 ; and prices are p 1 = 1 and p 2 = 2 : What is the consumption bundle. Now if the price goes upto p 1 = 2 ; what is the new consumption bundle. Solve for the income and the substitution e/ect. 3. True± False and Explain Gi/en good is one whose demand curve maybe upward sloping If the consumer has perfect complements utility function, the substitution e/ect is zero. For an inferior good, the substitution e/ect is in the same direction as the income e/ect. For an inferior good, when its prices goes up, the quantity demanded cannot go up. xy; where x is oranges and y is cherries. The price of oranges is $1 per unit and price of cherries is $2 per unit. His income is $100 per day. If the price of oranges. 1
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Answers to the Practice Questions 1. a) Let us introduce our budget constraint: m = p x x + p y y The utility function is U = 5 x + 3 y So in this case we know that the above are perfect substitutes:
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This note was uploaded on 03/16/2010 for the course ECON 100A taught by Professor Justinmarion during the Spring '08 term at University of California, Santa Cruz.

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practice1 - Econ 100A : Intermediate Microeconomics Winter...

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