ECO2003F supp 2009 final

# ECO2003F supp 2009 final - ECO2003F Intermediate...

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1 ECO2003F: Intermediate Microeconomics Supplementary Examination January 2010 TIME: 3 hours TOTAL MARKS: 235 This exam comprises FOUR sections and 8 pages. Please answer each section in a separate booklet.

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Section A (80 marks) 1. Mr. Mouse has a utility function described as , with prices ݌ and ݌ associated with goods ݔ and ݕ respectively, with a total monthly income of m. 4 / 3 4 / 1 ) , ( y x y x U = a. Find the optimal quantities of ݔ and ݕ . [25 marks] b. If the price of ݔ is 10, the price of ݕ is 7, and Mr. Mouse’s total income is R350, what is the level of utility associated with his optimal consumption bundle? c. What type of good is ݔ ? Why? [5 marks] [5 marks] 2. Please explain the Hicks Decomposition below (you are not required to reproduce this diagram), being sure to note the direction and sizes of the income, substitution and total effects as well as the direction of the price change. [15 marks] 2
Schooling The South African government is considering two possible interventions in the education market in South Africa. Prior to any policy being proposed, schooling is initially at s 1 , and the two proposals under consideration are outlined below. For the representative individual, (i) illustrates the impact of option 1, and (ii) the impact of option 2 on schooling. Option 1 allows you an amount (s 2 ) of free schooling tenable at public schools Option 2 provides you with schooling free up to an amount s 2 which can be redeemed at any school. The first panel shows you the effects of each policy superimposed on one another, while the bottom panel illustrates the effect of each policy separately. a. Describe the type of policy being employed and optimal schooling in (i) [5 marks] b. Describe the type of policy being employed and optimal schooling in (ii) [5 marks] c. Please relate the final consumption of education in (i) to (ii). Why might the observed difference in optimal schooling differ between the policies? Do you expect to see this pattern for all individuals? How do the level of funding and individual preferences matter? [20 marks]

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## This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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ECO2003F supp 2009 final - ECO2003F Intermediate...

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