ECON 708 - Problem Set#6 - Solutions
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 A person who is risk-averse always buys some amount of insurance, even if the price
is not actuarially fair. True or False. Justify your answer.
Solution: False. Let
ECON 708 - Problem Set#4 - Solutions
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 Consider the following utility function
u(x1 , x2 ) = x x1
1 2
Solve the following:
(a) Find the compensated demand function h(p, u).
(b) Find the expenditure functi
Problem Set #1
(Due Wednesday, February 12 at beginning of lecture)
Economics 705
Spring 2014
Instructions: Show/prove how you obtained your answers.
1. Consider the regression model yi = + i under the following assumptions:
A0)
(yi , xi ) i.i.d.
A1)
E(i
Econ 464
M. Muniagurria
Problem Set 1
Due date to be announced
I. Gains from Trade / Standard Trade Model
The following problems are from: General Equilibrium in Open and Closed Economies, and The
Gains from Trade, from International Trade, by J. Markusen
ECON 708 - Problem Set#8 - Solutions
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 Consider a matching market with two distinct sides, metaphorically called men
and women, but perhaps better thought of as a professional partnership, likes specialis
You are not allowed to consult any notes or books. You have to write your answers in the blue book that the persons proctoring the
exam give you. Your answers should reflect only your knowledge. Attempting to consult with others or to look at someone else
Noah Williams
Department of Economics
University of Wisconsin
Economics 312
Macroeconomics
Spring 2013
Midterm Examination Solutions
Instructions: This is a 75 minute examination worth 100 total points. Each question is
worth 25 points. Choose FOUR out of
ECON 708 - Problem Set#5 - Solutions
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 Consider a lottery that yields $10 and $20 each with chance 1/2. Consider a second
lottery that yields $5, $15 and $30 with chances 1/3, 5/9 and 1/9. Show that if an
Economics 312
Macroeconomics
Noah Williams
Problem Set 3 Solution1
1. Suppose that there is a temporary change in consumer sentiment, so that households cut back on consumption spending, but this has no other direct eects on the
economy. Consider the Keyn
ECON 708 - Problem Set#1 - Solutions
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 I go to buy a new Jetta to replace my Altima. There are just two auto dealers close
enough to search from. The rst dealer oers me $ 21,000. Searching at the other de
ECON 708 - Problem Set#4
(Due on Friday 02/28/14 before discussion section)
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 Consider the following utility function
u(x1 , x2 ) = x x1
1 2
Solve the following:
(a) Find the compensated demand function h
ECON 708 - Problem Set#2 - Solutions
Professor
TA
:
:
Lones Smith
Jorge Vasquez
Problem 1 For which exponents does the CES production function with 1 > > obey the
law of diminishing returns?
Solution: Take f (K, L) = (K + L )
to K (note that this is WLOG)
Microeconomics II Econ 708, Spring 2014
Lecture#13
Prof: Lones Smith
TA: Jorge Vsquez
a
4. Choice Under Uncertainty/Risk
Recall that the risk premium is dened by u(EX ) = Eu(X). Therefore,
>0
=0
<0
if risk averse
if risk neutral
if risk loving
In 3-dim
Microeconomics II Econ 708, Spring 2014
Lecture#15
Prof: Lones Smith
TA: Jorge Vsquez
a
5. The Market Exchange Paradigm
5.4
Stability
There are two dierent stability concepts: Walrasian stability and Marshallian stability. The
dierence between both concep
Microeconomics II Econ 708, Spring 2014
Lecture#17
Prof: Lones Smith
TA: Jorge Vsquez
a
7. Market Power
7.1
Monopoly
Consider a unique rm that faces a downward sloping demand curve for the good. Prots
are,
M (q) = p(q)q T C(q)
When optimizing with respec
Microeconomics II Econ 708, Spring 2014
Lecture#19
10
Prof: Lones Smith
TA: Jorge Vsquez
a
General Equilibrium
We have already discuss equilibrium in either a one-market world or in a one-consumer
world. In these cases we used partial equilibrium theory w
Microeconomics II Econ 708, Spring 2014
Lecture#18
Prof: Lones Smith
TA: Jorge Vsquez
a
8. Externalities
8.4
Arrow (1969) - Missing Markets
Arrow (1969) pointed out that Coase solution ignores potential negotiation costs. So why
not create a market with t
Microeconomics II Econ 708, Spring 2014
Lecture#4
Prof: Lones Smith
TA: Jorge Vasquez
2. Producer Theory
2.1 Cost Minimization
Given inputs z = (z1 , ., zn ) and input prices w = (w1 , ., wn ), the problem of the
producer is:
minn w z s.t. f (z) = q
zR
Microeconomics II Econ 708, Spring 2014
Lecture#21
10
Prof: Lones Smith
TA: Jorge Vsquez
a
General Equilibrium
10.3
Contract Curve and the Core
10.3.3
Uniqueness of Equilibria: The Oer Curve Approach
In general, the answer to this question is NO. In fact,
Microeconomics II Econ 708, Spring 2014
Lecture#22
10
10.5
Prof: Lones Smith
TA: Jorge Vsquez
a
General Equilibrium
General Equilibrium with factor markets
Now we assume the following:
(i) Many consumers, each maximizing utility taking all prices as given
Microeconomics II Econ 708, Spring 2014
Lecture#12
Prof: Lones Smith
TA: Jorge Vsquez
a
4. Choice Under Uncertainty/Risk
Question: How can we measure risk aversion?
Measures of risk aversion: How much risk a decision maker will be willing to pay
to eli
Microeconomics II Econ 708, Spring 2014
Lecture#14
Prof: Lones Smith
TA: Jorge Vsquez
a
5. The Market Exchange Paradigm
5.1
Double Auctions
Consider a market for indivisible units of a good. Buyer b B have unit demand
and valuation vb . Seller s S have o
Microeconomics II Econ 708, Spring 2014
Lecture#10
Prof: Lones Smith
TA: Jorge Vsquez
a
3. Consumer Theory: Applications
Application - Labor Supply (Leisure Demand): Here the consumers income is
endogenous since total income depends on worked hours. What
Microeconomics II Econ 708, Spring 2014
Lecture#11
Prof: Lones Smith
TA: Jorge Vsquez
a
4. Choice Under Uncertainty/Risk
Life is about risk and taking chances. We use the word gamble or lottery below to
denote a complete probability description of some r
Microeconomics II Econ 708, Spring 2014
Lecture#11
Prof: Lones Smith
TA: Jorge Vsquez
a
4. Choice Under Uncertainty/Risk
Decision making under uncertainty. Consider two states of the world cfw_L, H, and
three dierent actions cfw_Saf e, Short, Long. In or
Microeconomics II Econ 708, Spring 2014
Lecture#4
Prof: Lones Smith
TA: Jorge Vsquez
a
2. Producer Theory
2.1 Cost Minimization
Given inputs z = (z1 , ., zn ) and input prices w = (w1 , ., wn ), the problem of the
producer is:
min w z s.t. f (z) = q
n
zR
Microeconomics II Econ 708, Spring 2014
Lecture#8
Prof: Lones Smith
TA: Jorge Vsquez
a
3. Consumer Theory
We have done what it is called Primal approach. Next we are going to explore the dual
approach to consumer theory.
Recall from the last lecture tha
Microeconomics II Econ 708, Spring 2014
Lecture#3
Prof: Lones Smith
TA: Jorge Vasquez
2. Producer Theory
Elasticity of y in x. This measures the proportionate (or percentage) change induced
in the function y(x) for a given proportionate change in its arg
Microeconomics II Econ 708, Spring 2014
Lecture#2
Prof: Lones Smith
TA: Jorge Vasquez
2. Producer Theory
Unlike with consumer theory, output here is cardinal: quantity units matter!
The rm here is an input-output machine, yielding a ow output Q = f (x1
Microeconomics II Econ 708, Spring 2014
Lecture#15
Prof: Lones Smith
TA: Jorge Vasquez
5. The Market Exchange Paradigm
5.4
Stability
There are two different stability concepts: Walrasian stability and Marshallian stability. The
difference between both con