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December Midterm


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FACULTY OF ARTS MIDYEAR EXAMINATION Economics 154-230D (Section 01) MICROECONOMIC THEORY Examiner: Professor John Kurien December 19, 2007 Associate Examiner: Professor Dickinson 9 A.M. Calculators and translation dictionaries are permitted, but textbooks and notes are not. The question paper need not be returned. In accordance with the rules, I also state on this page that the answers should be written on the exam book! In answering all questions, make sure that your assumptions are stated fully and your logic explained clearly. In many cases, using graphs are likely to increase the quality of your answers. This exam comprises a total of three (3) pages including this cover page. 154-230D (Section 1) December 07 Exam. page 2
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PART I Answer any four questions in Part I. Each is worth 16% of the examination. In each question, answer both sections (a) and (b) and each section is worth 8%. 1. (a). Starting with the preference maps of individual consumers, explain step by step how the individual demand curve for a commodity is derived. Decomposing the price effect, show how it is possible that a good might be a Giffen good. Assume that income and the price of all other commodities are held constant. On a graph that contains the individual’s preference map, with composite good set on the Y axis, and the commodity in question (call it C) on the X axis, plot the budget lines of the individual as the price of C varies. Then, by tracing out all the points where each budget line is tangent to an indifference curve, we have the price consumption curve (PCC). Each point on the PCC corresponds to a
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