Introduction to Economic Analysis
Fall 2007
Midterm Exam: November 19
Time: 1 hour and 15 minutes.
Try to answer all questions.
Good luck!
Question 1 (20 points). Note: this should be quick. If it is not, drop it:
you should not waste time here, the other questions are more time consuming!
Consider the preference relation on
X
=
<
2
+
defined as follows:
for any
element
x
=
x
1
x
2
and
y
=
y
1
y
2
of
X
:
x
%
y
if and only if
Max
{
x
1
, x
2
} ≥
Min
{
y
1
, y
2
,
23
}
1. Is this preference relationship complete ?
2. Is it transitive ?
Question 2 (30 points)
Let the utility function be:
u
(
x
1
, x
2
) =
√
x
1
+
x
2
(If you think there is something strange here because the utility is linear
in
x
2
, you are right! but trust me, do not worry and proceed as usual).
1. Write down the budget constraint: call income
m
and normalize the
price
p
1
, that is,
p
1
= 1. Determine the demanded bundle as a function
of price
p
2
and income,
m
.
(substitution works; Lagrange too; whatever
is easier for you).
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 Spring '11
 Bisin
 Economics, Utility

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