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4010practice midterm

# 4010practice midterm - AP/ECON 4010 ADVANCED MICROECONOMIC...

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AP/ECON 4010: ADVANCED MICROECONOMIC THEORY PRACTICE MIDTERM SECTION A: Short Answers. Explain briefly but clearly why each of the following statements is true, false or uncertain. 1. Indifference curves are convex to the origin because marginal utility is diminishing for all goods. 2. For the utility function U (x,y) = x α y β it can always be assumed that α + β = 1. 3. Utility function U (x,y) = (xy)/(x+y) is homothetic. 4. Expenditure functions are convex and rising in each price. 5. If the axioms of rational consumer behavior are satisfied, constrained utility maximization must occur at the point of tangency between the indifference curve and the budget line. 6. For the utility function U (x,y) = x 0.5 + y 0.5 elasticity of substitution is constant. 7. For the utility function U (x,y) = x + ln y, the compensated and normal demand functions for y are identical. 8. If the demand for a good rises when income alone rises, then its demand must fall when its price alone rises.

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