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Econ 301 Exam #1 Summer 2005 Name Solution Timé: | hour Instructions: To obtain credit, you must give arguments to support your answer. The numbers in brackets at the start of each question are the numbers of points the question are worth. Good Luck! Call tavecl ste, Vig Paes bal missing Some WON = | ) 1) John’s utility function is U = x’y'*. The price of x and y are p, = $2 and p, = $% respectively. His income Y = $90. What is his optimal consumption bundle? How much utility does he receive from this bundle? If his utility function changes to be U = x’y'* + 50, would his optimal consumption bundle and utility level change? ophimal condition ; Ml d -oy i Pye 9 Mux= any" Mux My oY HY Pr Py & MUy = try” x #€ fom BC Pa At byg =% 2's J ca) = 90 a *- ane [0 po Tin ven Wainy > bundle Wold Be WOM = Yo | ook change bec Utility & Wav 2) In class, we identified properties associated with ordinal utility. On€of these properties is up to WKH, “Completeness”. Explain what this means. C. shorsfomation Completeness, - a consurer cm rank oF orcle all pesarble combinations of gueds — boxed orn utility vecwived cobaperis'o west 5) 3) Consider a consumer who can choose between wheat and corn (goods are substitutes). a. What happens to the demanded amount of corn if the price of wheat increases? let w= wheort Put wi cf C= corm Clow otdomone ) b. What happens to the demanded amount of wheat if the price of corn decreases? Pol Ct wh c. What happens to the demanded amount of wheat if the income increases? (hint: tell all possible cases) [Tt if WwW 18 normal > Wt W is WWenor> Wt 1 
