198s2008.midterm.key

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

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Department of Economics, HKUST ECON 198 Microeconomic Theory I Semester: Spring 2007/08 Tutor: Peter K. Tsui Office number: Room 2393 (ext.7597) Email: [email protected] Office hours: Mon 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. Midterm Examination Solutions 1. y x y x p p U U > implies y y x x p U p U > The consumer gets more utility from spending an additional dollar on X than on Y. In this case, the consumer’s utility will be increased by spending more on X. As long as the marginal utility of spending an extra dollar on X exceeds the marginal utility of spending an extra dollar on Y, the consumer can increase her utility by shifting her budget toward X and away from Y. Due to diminishing marginal utility, the marginal utility of X will decrease and marginal utility of Y will increase. The utility maximization is achieved only when the marginal utility per dollar of
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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.key - Department of Economics, HKUST ECON...

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