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Advanced Microeconomic Theory I
Fall 2009
Midterm Exam
11/1/2009
Answer all three questions. Write clearly and show all steps. I prefer English,
but you may answer in Chinese if you feel it would help. The numbers in brackets
are points for each question.
p
and income
I
is
x
(
p; I
)
.
We know that Dangdang always uses up her income.
Hence,
px
(
p; y
) =
y
to choose a consumption bundle
x
2 <
n
+
such that
u
(
x
)
u
for some objec
tive function
u
(
:
)
that is increasing in
x
. She does so by o±ering Dangdang
an allowance
y
and imposing a perunit tax
z
i
of good
i
i
if
z
i
is
negative.) Dangdang has no other source of income, and is e±ectively facing a
budget constraint
(
p
+
z
)
x
=
y
. De²ne
f
(
p; u
)
±
min
z;y
(
y
²
zx
(
p
+
z; y
))
s.t.
u
(
x
(
p
+
z; y
))
u
as the minimum expenditure that Fengfeng needs to achieve her goal.
(a) (20) Is
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This note was uploaded on 10/23/2011 for the course ECON 501 taught by Professor Zobuz during the Spring '11 term at Istanbul Technical University.
 Spring '11
 zobuz

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