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Unformatted text preview: YORK UNIVERSITY Arts Economics 2300 D: Barry Smith Final Exam Fall 2008 Instructions . The exam consists of 1 part, Part A. Part A contains choice. You must do 5 of the 6 questions. Each question is worth 20 marks. You have 3 hours to complete this exam so, roughly speaking, you have 36 minutes to answer each question. Write your answers in the exam booklets that have been supplied to you. Be sure to provide the information requested at the front of the exam booklets. Part A Answer 5 of the following 6 questions. Each is worth 20 marks. 1. Suppose that an agent has standard preferences with a diminishing marginal rate of substitution. There are two goods: x 1 and x 2 with prices p 1 and p 2 . The income of the agent is M. Suppose that good 2 is inferior. (a) Show the consumer equilibrium on a carefully labelled diagram. Ex- plain why the point that you show is an equilibrium. (b) Suppose that the price of good 1 ( p 2 ) increases. Explain the income and substitution effects and illustrate them using a carefully labelled...
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This note was uploaded on 04/17/2010 for the course LAPS ECON2350 a taught by Professor Barrysmithandtasso during the Spring '10 term at York University.
- Spring '10