04 Jun Question YORK UNIVERSITY AP/ECON2300A – Intermediate Microeconomic Theory I (Fall 2014)
Question
YORK UNIVERSITY
AP/ECON2300A – Intermediate Microeconomic Theory I (Fall 2014)
Midterm Exam #2
Name:_______________________________ Student ID:_______________________
Note: This exam includes 8 short-answer questions with a total mark of 60. Your grade will be based on
what you have written in the provided exam book. All answers except graphs must be printed with a pen
or a ballpoint pen. Pencil can only be used to draw graphs. You need to provide a brief explanation to
your answer for complete credit. You must label graphs clearly.
1. What is a homothetic preference? Are Cobb-Douglas preferences homothetic preferences?
Please explain. (6 points; Note: no graph needed.)
2. Suppose a consumer consumes two goods: x1 and x2. Please use graphs to illustrate how to
derive an income offer curve and Engel curves for the two goods for a typical consumer. You
need to explain the meanings of income offer curve and Engel curve, as well as how you
have derived them. (9 points; Note: both explanations and graphs are needed.)
3. Suppose a consumer consumes two goods: x1 and x2. Prices of the two goods are p1 and p2.
(1) Suppose p1 decreases which will affect the optimal consumption of x1. Please use a
graph to illustrate the income effect and substitution effect of such a price change. (5
points; Note: both explanations and graphs are needed.)
(2) Suppose a consumer has preferences between two goods that are perfect substitutes. Can
you change prices in such a way that the entire demand response is due to the income
effect? (5 points; Note: both explanations and graphs are needed.)
4. What is Giffen goods? Does Giffen goods have to be inferior goods? (5 points; Note: both
explanations and graphs are needed.)
5. Suppose that the demand curve is D(p)=10-p, where p is the price of the good. What is the
gross benefit from consuming 6 units of the good? If the price changes from 4 to 6, what is
the change in consumer’s surplus? (8 points; Note: both explanations and graphs are
needed.)
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