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midterm_Thursday

# midterm_Thursday - ECO 310 Fall 2008 Midterm Examination...

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ECO 310, Fall 2008 Midterm Examination October 23 Important instructions 1. This is a closed-book examination. Put away your books, handouts, notes, calculators, palmtops, cellular phones, . . . now . 2. Print your name and your preceptor’s name clearly on the front cover of each answer booklet. Write your answers clearly. We won’t grade unreadable answers. 3. Answer each question in a separate booklet . 4. Write and sign the honor pledge—“I pledge my honor that I have not violated the honor code during this examination.”—on the front cover of your answer booklet. 5. The examination is for 75 minutes. It will end promptly . 1

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Question 1 [50 points] 1. [40 points] There are two goods whose quantities are denoted by x and y and prices by p x and p y . A consumer has the following utility function U ( x, y ) = ( ( x - x 0 )( y - y 0 ) if x x 0 and y y 0 , 0 otherwise , where x 0 and y 0 are minimal subsistence levels of goods x and y , respec- tively. She maximizes her utility subject to the budget constraint p x x + p y y I.
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