198s2007.final.key

198s2007.final.key - Department of Economics, HKUST ECON...

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1 Department of Economics, HKUST ECON 198 Microeconomic Theory I Semester: Spring 2006/07 Tutor: Peter K. Tsui Office number: Room 2393 (ext.7597) Email: ecpeter@ust.hk Office hours: Thur 3:00p.m. – 5:00p.m. Note: This set of solutions serves only as guidelines for grading. Giving the same answers as suggested below is no guarantee of full credits. Detailed explanation is required. Final Examination (Solutions prepared by Peter Tsui) 1. (a) Indifference curves are convex to the origin. As more and more of one good is consumed, we can expect that a consumer will prefer to give up fewer and fewer units of a second good to get additional units of the first one. (b) No, because Pokemon cards are not homogeneous. The 100 th Pokemon card is different from the other 99 cards. 2. Agree. For the ordinary (uncompensated) demand curve customarily used, utility changes along the curve. Therefore, the area under the ordinary demand curve does not really measure the total valuation. Only the compensated demand curve, which holds the utility constant, measures the total valuation. 3. ) ( ' ) ( ' ' ) ( W U W U W r = ) ( ' ) ( ' ' ) ( W U W WU W rr = (a) 0 ) ( = W r 0 ) ( = W rr (b) ) 1 ( 2 1 ) ( W W r + = ) 1 ( 2 ) ( W W W rr + =
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2 (c) ) 1 ( 1 ) ( W W r + = ) 1 ( ) ( W W W rr + = (d) ) 1 ( 2 ) ( W W r + = ) 1 ( 2 ) ( W W W rr + = Rankings according to ) ( W r : ) ( W r in (d) > ) ( W r in (c) > ) ( W r in (b) > ) ( W r in (a) Rankings according to ) ( W rr : ) ( W rr in (d) > ) ( W rr in (c) > ) ( W rr in (b) >
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This note was uploaded on 04/03/2010 for the course ECON ECON198 taught by Professor Leungsiufai during the Fall '09 term at HKUST.

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198s2007.final.key - Department of Economics, HKUST ECON...

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