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Ec701MidtermExam1F04 - EC 701 Michael Manove Microeconomics...

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EC 701 Microeconomics Michael Manove 18 October 2004 Midterm Examination 1 Instructions: Answer the problems in the spaces provided (but you do not have to fi ll the spaces). You may use the backs of the sheets for scratch paper. Think before you write. Your grade will be based on your reasoning, not on your formal calculations. Do not spend too much time on any one part. If you have to leave the room for any reason, please give the instructor your examination on the way out. You will have 80 minutes to complete the exam. I suggest that you do not exceed the recommended times for each question until you have answered all questions. Then, you can use the extra time to improve your answers. If you fi nish before 6:10 pm, you may leave, but be extremely quiet! Problem 1. [15 minutes] Prove the following proposition. Explain each step of the proof. Let U ( x ) be a utility function, let h ( p, u ) denote Hicksian compensated demand, and let p 0 and p 00 be two price vectors. If U ( x ) is continuous and locally nonsatiated, and if
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