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midterm_2007

# midterm_2007 - Introduction to Economic Analysis Fall 2007...

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Introduction to Economic Analysis Fall 2007 Mid-term 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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midterm_2007 - Introduction to Economic Analysis Fall 2007...

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