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Unformatted text preview: Take-Home Final EVEN-EVEN-EVEN Answer Key 1 Take-Home Final Exam EVEN-EVEN-EVEN Answer Key This exam is take-home, open-book, open-notes. You may consult any published source (cite your references). Other people are closed. The exam you turn in should be your own personal work. Do not discuss with classmates, friends, professors (except with Prof. Starr or Ms. Fried who promise to be clueless), until the examination is collected. Please use a blue book. There are four questions. Answer all questions fully. State clearly any additional assumptions you need. 1 The proof of the First Fundamental Theorem of Welfare Economics (Theorem 19.1) uses either (i)the combined assumption of non-satiation (C.IV) and convexity (C.VI (C)) or (ii) the assumption of weak monotonicity of preferences (C.IV*). These assumptions are designed to assure local non-satiation of preferences. That is, nearby to every point in x X i there is x prime X i so that u i ( x prime ) > u i ( x ). Thus there are no thick indifference curves (zones of satiation). This ensures that for each household i H , the household spends fully up to the limits of its income p w i = M i ( p ) = p r i + summationdisplay j ij ( p...
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- Fall '08