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midterm_2008

midterm_2008 - Introduction to Economic Analysis Fall 2008...

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Introduction to Economic Analysis Fall 2008 Mid-term Exam: October 27 Time: 1 hour and 15 minutes. Try to answer all questions. Best of luck! Question 1 (20 points). Note: this should be quick and easy. If it is not, drop it: you should not waste time here, the other questions are more time consuming! Consider the preference ordering over the composition of Congress induced by the following procedure: I °ip a coin; if heads I strictly prefer a Congress with a Democratic majority; if tails I strictly prefer a Congress with a Republican majority. 1. i) Is this preference relationship complete ? ii) Is it transitive ? Question 2 (20 points) Let the utility function be: u ( x 1 ; x 2 ) = 1 2 log x 1 + 2 log x 2 (It does not get any easier than this. But be careful and precise.) 1. i) 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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