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Unformatted text preview: Econ 6202, Fall 2009 Dmitry Shapiro Midterm Exam October 27, 2009 There are 3 questions in the midterm. The exam is 75 minutes long and has 75 points. The exam is closed-book. Be sure to explain your reasoning clearly for each answer, as most credit will be awarded based on your explanation rather than your final answer. Please turn off your cell phones and other sound-making devices. Good luck! 1 1. [25 points] A consumer has preferences over two goods represented by the utility function u ( x 1 ,x 2 ) = x 1 + 2 x 2 . (a) Find the Marshallian demand. Be aware that a corner solution is possible. (b) Find the indirect utility function. (c) Using your answer from c) find the Marshallian demand without solving the utility maximization problem. (d) Find the expenditure function (Hint: it might be faster without solving the minimization problem). (e) Find the Hicksian demand. 2. [25 points] Consider a government that raises money in a two-good economy by taxing good 1 at a rate of t per unit. That is, if the producer charges the price p 1 per unit the consumer pays price p 1 + t per unit. Assume that the price of good 2 is p 2 and the given these prices consumer purchases the bundle x = ( x 1 ,x 2 ). The government decides to switch from the per-unit tax to lump-sum tax that generates the same revenue. Specifically, now the consumer has to pay tx 1 regardless of everything (including the new level of consumption of good 1). Suppose, moreover, that prices change only by the amount of the tax; i.e., if before consumer-prices were ( p 1 + t ; p 2 ) now they become (...
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This note was uploaded on 10/20/2010 for the course ECON 6202 taught by Professor Shapiro during the Fall '09 term at UNC Charlotte.
- Fall '09