198s2008.midterm - Department of Economics, HKUST ECON 198...

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1 Department of Economics, HKUST ECON 198 MICROECONOMIC THEORY I Semester: Spring 2008 Prof. S. F. Leung Midterm Examination April 1, 2008 3 pm – 4:20 pm This is a closed book examination. You have 80 minutes to complete the test. Write coherently, lucidly, and legibly. Always explain your answer . The maximum score for this exam is 80 points. Points are marked next to the questions and may be served as a rough guide to how much time you should allocate on each question. Points will be deducted for irrelevant materials. Use mathematics and/or diagrams wherever appropriate to support your answer. Unless stated otherwise, assume that indifference curves are strictly convex. 1. (5) A utility maximizing consumer spends his income I on two goods x and y. Suppose that . x x yy Up > Without using mathematical derivations, explain that this cannot be a point where the consumer is satisfied. What exchanges will the consumer make? Explain. 2. (10) Indicate whether each of the following statements is TRUE, FALSE, or UNCERTAIN, and explain your answer. Use mathematics and/or diagrams to support your answer. (a) Indifference curves are downward sloping because preferences are transitive. (b) The (Hicksian) compensated demand curve is steeper than the ordinary demand curve if the utility function is quasi-linear in that commodity.
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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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198s2008.midterm - Department of Economics, HKUST ECON 198...

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