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Midterm Questions

The document consists of review questions for a midterm exam covering consumer behavior, utility functions, and budget constraints. It includes problems related to demand calculations, optimal consumption choices, marginal rates of substitution, and graphical representations of budget sets and Engel curves. The questions require application of economic concepts to analyze consumer preferences and decision-making under budget constraints.

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16 views1 page

Midterm Questions

The document consists of review questions for a midterm exam covering consumer behavior, utility functions, and budget constraints. It includes problems related to demand calculations, optimal consumption choices, marginal rates of substitution, and graphical representations of budget sets and Engel curves. The questions require application of economic concepts to analyze consumer preferences and decision-making under budget constraints.

Uploaded by

semihozgur0
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Review Questions for Midterm

1. Arda consumes strawberries and cream but only in the fixed ratio of three boxes of
strawberries to two cartons of cream. At any other ratio, the excess goods are totally
useless to him. The cost of a box of strawberries is $10 and the cost of a carton of
cream is $10. His income is $200. Find his demand for strawberries and for cream.

2. The prices of goods x and y are each $1. Gizem has $20 to spend. She has strictly
monotonic and strictly convex preferences. At the bundle (x,y)=(10,10), her marginal
rate of substitution is -2. Is this an optimal choice for Gizem? If not, which good
should she consume more of, and which good should she consume less of?

3. A consumer has a utility function


a) What is the marginal rate of substitution of x1 and x2 when x1 = 5 and x2 = 2.
b) Derive the demand for both goods using the tangency condition.
c) Derive the Engel curve for both goods. Show them graphically. What are the slopes
of Engel curve?
d) Is good 1 a normal good or an inferior good? Why?

4. Suppose Tan has an income of $30. He is hungry and he can eat pizza or lahmacun.
He prefers eating 2 units of lahmacun or 3 units of pizza. Price of lahmacun is $10 and
price of pizza is $5.
a) Write down the equation of Tan’s budget constraint.
b) What is the slope of budget constraint.
c) Show the budget set graphically.
d) Write down the utility function for Tan’s preferences.
e) Draw the indifference map for Tan.
f) Find Tan’s demand function for pizza and lahmacun.
g) Show your work graphically.
h) Find Engel curve for pizza and lahmacun. Also show your work graphically.

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