exam22000final

# exam22000final - 14.03 Exam 2 Fall 2000 DO NOT OPEN THIS...

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14.03 Exam 2 Fall 2000 DO NOT OPEN THIS EXAM UNTIL TIME IS ANNOUNCED! There are 80 points on this exam and you have 80 minutes to complete it. The points can be used as a guideline for how many minutes to spend on each problem. If you are uncertain of the answer to a problem, move on to the next problem and return to the question at the end of the exam, time permitting. THE EXAM WILL END PROMPTLY AT NOON. WHEN TIME IS CALLED YOU MUST PUT DOWN YOUR PENCILS AND CLOSE YOUR EXAMS IMMEDIATELY. IN FAIRNESS TO ALL, IF YOU ARE SEEN WRITING AFTER TIME IS CALLED, WE WILL BE REQUIRED TO DOCK POINTS FROM YOUR EXAM.

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Part I: 5 points each True, False, or Uncertain AND WHY. You must explain your answer with one or two sentences and/or graphs. Answers without justification receive zero points. 5 points each. 1. Although the First Welfare Theorem demonstrates that a free market in equilibrium is Pareto efficient, the Second Welfare Theorem reveals that there is normally a tradeoff between equity and efficiency. 2. Consider an expected utility maximizer who is globally risk seeking (meaning, she is risk seeking at all wealth levels) with U (\$0) = 0. For this person, 2 U (\$500) < U (\$1,000) . [A diagram is required.] 3. Consider an economy that produces two goods, A and B, using two inputs K and L. In the production of these goods, MRTS A = MRTS B . Among consumers in this economy, MRS i = MRS j . The operation of this economy is Pareto efficient. 4. Kane and Staiger found that small decreases in abortion availability reduced both abortions and births. Based on their analysis, we should expect that banning abortion altogether (for example, by overturning Roe v. Wade ) would reduce births even further.
Part II: 15 points each 1. (This is not a math problem. Answer using principles of expected utility maximization.)

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## This note was uploaded on 03/18/2012 for the course ECON 201 taught by Professor Çakmak during the Spring '10 term at Middle East Technical University.

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exam22000final - 14.03 Exam 2 Fall 2000 DO NOT OPEN THIS...

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