2003SpringTermTest

# 2003SpringTermTest - TITITVERSITY WATERLOO OF Department f...

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TITITVERSITY OF WATERLOO D ep artment o f Economi c s Professor J. Cuenca I {l t Il_,1 1 l LAST NAME: IMTIALS AND ID#: Economics'rt tf ?'jJ?.%'"rjiprin g 2 003 ) Fuii marks would add up to 40 points. Oniy a basic caiculator is allowed Please circle the "8" question answered: | 2 "C" q:uestions answered: 123-45678910 11 12 PART A (6 points): Please solve the following problem in the space provided. A-1. A consumer's tastes are given byihe utility function.TU,: (X + 4) -vo (y + 1)16. This consumer goes to market w'ith a monev income I : \$46, and he concludes that'his pr6f.ola "tir'oi""rr-ro-&;;l;f;: i; and Y* = 7' Find E aqt P, assuming tt Jirt".i.*tet prices are beyond the consumer,s control. lHint: P" is a whole numbir, p* is'no-t, h ff;ilil;; no calculus: Mu.: (I/4)6T?j;Z"fi:iliirr^#;' MUy (1/3) (X+ 4)t4 (Y+ l)rn l t1C \l i*.{ ' /t t, /1 r-tr< t) ) l' i i ' --t Answers: Px: Py-

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z PART B (6 points): Please a.nsyer4lffQllE ofthe following TWO qgestions in rhe space provided. Ifmore than one question is answered, only the answer with the LowEST mark wiil be considered'valid. B-1. B-2" \r \ \J (a) Draw the indifference-cuwes diagram presented in class to. show that a cash subsidy will raise recipients' total.utilityto a greater extent than an equivalent-cost price subsidy. you -uii i"a;c-ai" tt-r" "ost of tl6 pricl *:b-:ill:iH y.:-r.,:pfl1_t".y-.dirc linei. Zero marks'for an unclear or incompletely iabeil"A ai"erc.i'@j Explarn wltr words how the cost of the price subsidy is determined. 1b; trl6ntion one circumstance that might lead the govemment to choose a piice subsidy over an equivaleritosi castr ,riirijy.
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2003SpringTermTest - TITITVERSITY WATERLOO OF Department f...

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