EC 701
Microeconomics
Michael Manove
6 October 2003
Midterm Examination 1
Instructions:
Do all three problems. Think before you write. Do not spend too much time on
any one problem. Your goal should be to convince the graders that you understand the material.
Use common sense. If you have to leave the room for any reason, please give the instructor your
examination on the way out. If you
f
nish before 6:10 pm, you may leave, but be extremely quiet!
Problem 1.
(20 minutes)
Answer the following questions about the expenditure function:
a)
.D
e
f
ne the expenditure function.
b)
.Ho
ld
u
constant. Prove (formally) that the expenditure function is concave in prices.
c)
. Give an economic interpretation of the concavity of the expenditure function in prices.
Problem 2.
(40 minutes)
Consider the utility function
u
(
x
1
,x
2
)=

x
2
−
x
1

.
a)
. Sketch the nobetter set
B
(1
,
2)
for
x
1
=1
and
x
2
=2
.De
f
ne
B
(1
,
2)
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 Spring '11
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 Microeconomics

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