papers_econ1001_211202

papers_econ1001_211202 - THE UNIVERSITY OF HONG KONG School...

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THE UNIVERSITY OF HONG KONG School of Economics & Finance 2002-2003 1st Semester Examination Economics: ECONlOO 1 A Introduction to Economics 1A Dr K L Shea December 21, 2002 2:30-4:30p.m. Candidates may use any self-contained, silent, battery-operated and pocket-sized calculator. The calculator should have numeral-display facilities only and should be used only for the purposes of calculation. It is the candidate’s responsibility to ensure that his calculator operates satisfactorily. Candidates must record the name and type of their calculators on the front page of their examination scripts. Time allowed: Two hours Answer all questions in section A and any two questions in section B. SECTION A (Answer all five questions in ths section. Each question carries 12 marks) 1. (a) Good 1 is a normal good. Suppose the price of good 1 falls. Separate the price effect into income and substitution effects. Briefly explain your answer. You may either use the Slutsky approach or the Hicksian approach. (b) Explain the relationship between normal good and Giffen’s good. 2. (a) Explain why the output level under perfect competition is the social optimum. (b) Explain whether the output level under perfect competition is still socially optimal in the presence of externality. 3. Mr. A is risk-loving. He has $100. There is a 50% chance of losing $20. Show graphically if Mr. A will buy insurance if the premium is fair. 4. (a) Explain the cost minimization condtion in the long run. (b) “To maximize profit, a firm must minimize its cost first.” Illustrate the statement with the output decision of a competitive firm in the long run. 1
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5. (a) What is a Nash equilibrium? (b) What is a dominant strategy? Explain if a dominant strategy equilibrium is a Nash equilibrium. SECTION B (Answer any two questions in this section. Each question carries 20 marks) 6. ‘‘An increase in wage will reduce the amount of labour demanded and increase the amount of labour supplied,” Explain in detail if the statement is true. 7. A monopolist sells in two markets, A and B. (a) Suppose the monopolist practices price discrimination in the two markets. Explain how to obtain the equilibrium output and price in each market graphically. (b) Suppose the monopolist cannot practice price discrimination and must charge the same price in the two markets. Explain how to obtain the equilibrium output and price in each market graphically. 8. Smith has $100 to spend on good 1 and good 2. His utility function is: u = 4X1X2 (MU1 = 4x2 and MU2 = 4x1) Suppose the price of good 1 is $1 and the price of good 2 is also $1. Find
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papers_econ1001_211202 - THE UNIVERSITY OF HONG KONG School...

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