ANSWERS TO 4010 MIDTERM

ANSWERS TO 4010 MIDTERM - ANSWERS TO 4010 MIDTERM Short...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ANSWERS TO 4010 MIDTERM Short Answers: 1. False. DMRS only ensures convex indifference curves and, therefore, downward sloping compensated demand. It follows from Slutsky equation that if income effect is sufficiently negative (as in the case of Giffen goods), ordinary (Marshallian) demand can be upward sloping. 2. True. One is a positive monotonic transformation of the other. Check that the MRS is identical. 3. Trure if the goods are consumed in the ratio of 1 x to 1 y and the utility function is given by U = min{x, y}. 4. True. Do the tax case (Fig 4.5) in reverse. 5. False. Expenditure function is homogenous of degree zero: E = P x x * + P y y * , where x * and y * is the commodity bundle that minimizes the cost of achieving a given level of utility. Clearly, if both prices double, minimum cost of retaining the same level of utility must double as well, since, at unchanged relative prices cost minimizing bundle remains the same. But, the indirect utility can not be homogenous of degree one in prices since,
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/09/2010 for the course AP 4010 taught by Professor Anam,mahmudul during the Winter '10 term at York University.

Page1 / 2

ANSWERS TO 4010 MIDTERM - ANSWERS TO 4010 MIDTERM Short...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online