Microecnomics Exam

Intermediate Microeconomics collide with 2005 Midterm Exam Direction This is a close book, close notes interrogation t present is 100 points possible, please afford oversight to the weights as you allocate your time the exam starts at 330 and ends at 500 sharp. Good luck 1. (25 points) have the utility escapepic. 1) Is the assumption that more is relegate satisfied for both goods? 2) What is pic for this utility section? 3) Is the pic diminishing, constant, or increasing as the consumer substitutes pic for pic on an indifference curve? . (25 points) A consumer purchases devil goods, nutrition pic and clothing pic. Her utility work is given by pic. The price of food is pic , the price of clothing is pic, and the consumers income is pic. 1) What is the get function for clothing? 2) Is clothing a normal good in this type? 3. (25 points) Suppose that Natashas utility function is given by u(I) = I0. 5, where I represents classly income in thousands of dollars. 1) Is Natash a risk loving, risk neutral, or risk averse? Explain. ) Suppose that Natasha is soon seduceing an income of $10,000 (I = 10) and can earn that income next year with certainty. She is offered a chance to take a new agate line that offers a . 5 prospect of earning $16,000, and a . 5 probability of earning $5,000. Should she take the new job? 3) In (2), would Natasha be willing to buy insurance policy to protect against the variable income associated with the new job? If so, how much would she be willing to pay for that insurance? 4. (25 points) Suppose a consumer has the ii design utility function picpic here picrepresent the amount of consumption in level 1 and 2 respectively. The consumers income consists fairish of inherited assets A in period 1, and there is no income in atomic number 42 period. If the remaining income is invested in an asset, it can earn a rate of interest r. 1) return the economic meaning of the parameter pic in the utility function. 2) Obtain the opt imal parcelling ofpic, and illustrate it with the graph. 3) Explain how the optimal consumptions in periods 1 and 2 vary with A, r, andpic.