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Unformatted text preview: Exam 1-Winter 2010 Economics 380 R. Pope Name________________________ Throughout, the notation is as we have used in class: U is a utility function, x and y are two goods with respective prices, p x and p y , and I is income. Show your work . Total= 140 points (listed beside each question). (5) 1. List and explain 3 main axioms that are used to obtain a utility function representation of preferences. (15) 2.a) Explain the meaning of the marginal rate of substitution (MRS). b) Does the utility function U(x,y)=y+6ln(x) have diminishing MRS (y on the vertical axis). c) Why does diminishing MRS hold special interest? a) b) c) (10) 3. John is in school. He has only 40 hours per week that he can divide between leisure and work. His job allows flexible hours and he is paid $9 per hour. Write his weekly budget constraint between leisure (x) and goods (y) in the form that economists prefer. (15) 4. Explain why the following utility functions represents or does not represent the same preference ordering:...
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