Intermediate Microeconomic Theory Exam, Fall 1991, Exams of Microeconomics

Download Intermediate Microeconomic Theory Exam, Fall 1991 and more Exams Microeconomics in PDF only on Docsity! EXAM 2 INTERMEDIATE MICROECONOMIC THEORY KjGfo^l 3D jo Fall 1991 October 24, 1991 Mr. Meredith Please answer all questions in the exam booklet provided. PART 1 (25 minutes) 30pts 1. Define and state the importance of the following terms: a) Slutsky equation b) Quasilinear utility function c) Gross consumer surplus d) Compensating variation e) Price elasticity of demand PART 2 (30 minutes) Please provide short answers to the following questions. Be as concise as possible. lOpts 2. Explain with graphs. Given a CobWDouglas utility function. a) Demonstrate graphically the income effect and substitution effect when the price of good 2 decreases. Good 2 is normal. Prices and income are positive. b) How does your answer in (a) change if good 2 is inferior? c) How does your answer in (b) change if good 2 is a Giffen good? lOpts 3. Suppose you are able to choose between work and leisure. Your wage is $15 per hour and you receive $100 in non-labor income. a) If your utility function is U(C, R) = CR, how many hours of leisure per day would you choose? C = units of consumption pc = 1, and R is leisure. b) How does your answer change if your wage decreases by $5? 5pts 4. If Jodi's net demand for (xl7 x2) is (5, -3) and her endowment is (4, 4). What are her gross demands? Is she a net buyer or net seller for x^ for x2 ? If prices were (1,1), draw her budget constraint. If prices changed to (1, 2) draw her new budget constraint. Over