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Econ 201 Spring 2009 Exam 1

Econ 201 Spring 2009 Exam 1 - 2 True or false Preferences...

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1 ECONOMICS 201 SPRING 2009 EXAM 1 Instructions: Please mark your answers clearly. No class notes or other materials are allowed. 100 points total. Each question is worth 5 points with the exception of Question 7 (20 points), Question 8 (10 points), and Question 15 (10 points). 1. Ronaldinho likes Adidas (good 1) and Nike (good 2) shoes. The price of good 1 is $0.50, and the price of good 2 is $1. His income is $100. As a promotion, Nike is giving him $0.50 cash back on each unit of good 2 that he purchases, and he is free to spend this cash however he wishes. Draw Ronaldinho’s budget line incorporating the promotion. Label the intercepts and slope.
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Unformatted text preview: 2. True or false: Preferences where two goods are perfect complements, e.g. ( , ) min{2 ,3 } 1 2 1 2 u X X = X X , violate the monotonicity (“more is better”) assumption. Explain your answer with a graph and/or one or two sentences. 3. True or false: Suppose that there are two goods. If one of them is Giffen, then the goods must be substitutes. Explain your answer with one or two sentences. 4. True or false: Suppose that there are two goods. If one of them is inferior, the other must be normal. Explain your answer with one or two sentences....
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