1. Consider a consumer with utility function (, ) = 1/2 1/2. Prices are
both equal to 1 to start with. Income is 50.
a. Compute the chosen consumption bundles and the attained level
of utility
Solution: = = 1. Using BC we have 50 = 2 and = = 25.
Utility i
1. Consider a consumer for whom two goods x and y are perfect
complements. Show graphically that the optimal consumption choice of
this consumer has the same proportion of goods x and y for all income
levels and for all (strictly positive) prices.
Solutio
1. Consider the inter-temporal choice of a consumer living for two periods.
Prices are equal to 1 in both periods. Todays income is equal to I, while
tomorrows income is 30. Let the interest rate be set to 1 + = 1.2.
Preferences are represented by the fol
1
How to compute the Equivalent Variation and
the Compensating Variation in a simple example
Consider the utility function u(x, y) = xy. Prices are initially both equal to
1. Income is 12. The optimal choice for the consumer is initially (5, 5) The
utilit
EC2024 Tutorial #7
Chapter 7
1. Use the asset-market-equilibrium diagram to show how an increase in real income
would affects the equilibrium real interest rate in the asset market.
Real interest
rate
Suppose the asset market is in
equilibrium initially a
EC2024 Tutorial #8
Chapter 9
LM Curve (Asset Market)
In Chapter 7, we have learned that asset market is in equilibrium when the real demand
for money equals the real supply of money.
Again consider an increase in Y. How would this affect the asset market
EC2000 - Tutorial 3 with Solutions
Sergio Currarini
October 21, 2016
Compute the Marginal Utilities of both commodities and the MRS for
the following Utility Functions:
U (x1 , x2 ) = x1 + x2
U (x1 , x2 ) = x21 + x22
U (x1 , x2 ) = x.5
1 + x2
U (x1 ,
1. When preferences are of the Cobb-Douglas type, then:
a. Indifference curves never touch the x-axis, but may touch the y-axis
b. Indifference curves never touch the y-axis, but may touch the x-axis
c. Indifference curve
1. When preferences are of the Cobb-Douglas type, then:
a. Indifference curves never touch the x-axis, but may touch the y-axis
b. Indifference curves never touch the y-axis, but may touch the x-axis
c. Indifference curves never touch either axis
2. Trans
EC2000 - Tutorial 7
Sergio Currarini
November 19, 2016
Argue formally that the following utility function:
1
(xr1 + xr2 ) r
represents preferences of the:
perfect substitute type for r = 1;
1;
perfect complements type for r =
Cobb Douglas type for r =
EC2000 - Tutorial 5
Sergio Currarini
November 5, 2016
1
2
1. Consider a consumer with utility function u(x1 , x2 ) = x13 x23 and income
m = 15. Prices are p1 = 2 and p2 = 1.
(a) Compute the optimal solution of this consumers problem.
(b) Compute now the P
EC2000 - Tutorial 6
Sergio Currarini
November 11, 2016
1. Paul is a worker, with preferences u(c, l) = cl over consumption c and
leisure l. Consumption price is set to 1. Each day, Paul sleeps for 8
hours, and allocates the remaining 16 hours between work
EC2000 - Tutorial 6
Sergio Currarini
November 11, 2016
1. Paul is a worker, with preferences u(c, l) = cl over consumption c and
leisure l. Consumption price is set to 1. Each day, Paul sleeps for 8
hours, and allocates the remaining 16 hours between work
EC2000 - Tutorial 7
Sergio Currarini
November 19, 2016
Argue formally that the following utility function:
1
(xr1 + xr2 ) r
represents preferences of the:
perfect substitute type for r = 1;
perfect complements type for r = ;
Cobb Douglas type for r =
EC2000 - Tutorial 5 with Solutions
Sergio Currarini
November 7, 2016
1
2
1. Consider a consumer with utility function u(x1 , x2 ) = x13 x23 and income
m = 18. Prices are p1 = 2 and p2 = 1.
(a) Compute the optimal solution of this consumers problem. [x1 =
Question 7
Jim and Tammy are partners in Business and in Life. As is all too common in this imperfect
world, each has a little habit that annoys the other. Jims habit, we will call activity X , and
Tammys habit, activity Y . Let x be the amount of activit
EC2002
Mock Exam
Subject
ECONOMICS
Title of Paper
EC2002: Intermediate Microeconomics II
Time Allowed
Two Hours (2h)
No. of Pages:
5
No. of Questions:
7
Instructions to candidates
Answer all questions. The use of a non-programmable calculator is allowed.
All Candidates
Mock Exam Paper
Department
Economics
Module Code
EC2002
Module Title
Intermediate Microeconomics 2
Exam Duration
Two hours
(in words)
CHECK YOU HAVE THE CORRECT QUESTION PAPER
Number of Pages
6
Number of Questions
12
Instructions to
Candida
MODULE CODE
All Candidates
Mock exam paper 2015
DO NOT OPEN THE QUESTION PAPER UNTIL INSTRUCTED TO DO SO BY THE
CHIEF INVIGILATOR
Department
Economics
Module Code
EC2002
Module Title
Intermediate Microeconomics II
Exam Duration
Two hours
(in words)
CHECK
Equilibrium
Varian 9th edition
Chapter 16
Market Equilibrium
A market is in equilibrium when total quantity
demanded by buyers equals total quantity
supplied by sellers.
Market Equilibrium
Market
p
demand
q=D(p)
D(p)
Market Equilibrium
p
Market
supply
q=
5 Asymmetric Information
Varian, chapter 38
Information in Competitive Markets
In purely competitive markets all agents are
fully informed about traded commodities and
other aspects of the market.
What about markets for medical services, or
insurance, o
4.2 Public Goods
Chapter 37
Varian 9th edition
Public Goods - Definition
A good is purely public if it is both:
nonexcludable and
nonrival in consumption.
Public Goods - Definition
Non-excludable consumption
All consumers can consume the good.
That