{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Midterm1_2005

# Midterm1_2005 - Introduction to Economic Analysis Fall 2005...

This preview shows pages 1–2. Sign up to view the full content.

Introduction to Economic Analysis Fall 2005 Mid-term Exam: September 21 Time: 1 hour and 15 minutes. Try to answer all questions. Good luck! Question 1 (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). 2. Extra Points Draw the demand for good x 2 and the demand for x 1 as a function of price p 2 . (Now is the moment to think about the fact that the utility function is linear in x 2 . Does your solution generate always non-negative quantities x 1 and x 2 ?). Question 2 (30 points). 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 } ≥ Max { y 1 , y 2 } 1. Is this preference relationship complete ?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}