Economics Department Faculty of Economics and Political Science English Section, Second Year Cairo University Intermediate Microeconomics

heory Fall !"#$ Dr% &e'a (assar ) Dr% *'del+&ameed (a,ar Mr% *hmed -aga' ) Ms% (esreen Selim utorial ./0 on Chapter ./01 Choice .2#0 -UE3F*4SE1

(1) At a boundary optimum, a consumers indifference curve must be tangent to her budget line. (2) Shadys utility function is U( , y) ! y2. "is marginal rate of substitution bet#een and y does not change if the amount of both goods doubles. ($) Ahmed has the utility function U( , y) ! ma % , y&. 'f the price of is the same as the price of y, Ahmed #ill buy e(ual amounts of and y. ()) 'f a consumer does not have conve preferences, then a point of tangency bet#een her indifference curve and her budget line must be an optimal consumption point. (*) Salmas utility function is U( , y) ! ( + 2) (y + 1). 'f her consumption of both and y is doubled, then her marginal rate of substitution bet#een and y remains constant. (,) -amiaa has utility function U( , y) ! + 2y. 'f the price of is -...1 and the price of y is */ piasters then -amiaa must consume e(ual amounts of both goods in order to ma imi0e her utility. (1) 2agdas utility function is U( , y) ! min% , y&. She ma imi0es her utility sub3ect to a budget constraint. 4he price of is the same as the price of y. 'f the price of rises and the price of y and her income remain constant, then her consumption of y #ill certainly decrease. (5) 2onas utility function is U( , y) ! min% + 2y, y + 2 &. 2ona ma imi0es her utility sub3ect to a budget constraint. 'f she chooses the bundle (*, ,), then the price of must be e actly t#ice the price of y.
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(1) "ends utility function is U(6, 7) ! (6 + 2)(7 + 1). 'f her marginal rate of substitution is 8$ and she is consuming 12 units of good 6, ho# many units of good 7 must she be consuming9 a. 1* b. ), c. 2) d. )1 e. 1 (2) :erys utility function is min% + $y, $ + y&. Simons utility function is min%$ + ;y, ; + $y&. :ery and Simon have the same income and face the same prices. a. :ery and Simon #ill demand the same amount of good . b. :ery #ill demand more of good y than Simon. c. Simon #ill demand more of good y than :ery. d. .ach #ill prefer the others consumption bundle to his o#n. e. <one of the above. ($) =areems utility function is U( , y) ! ( + $) (y + 2). 4he price of is -...1. 4he price of y is -...2. At all incomes for #hich =areem consumes positive amounts of both goods, he #ill consume> a. units of more than t#ice his consumption from y. b. units of y more than t#ice his consumption from . c. one more unit of than of y. d. one more unit of y than of . e. 2?$ as many units of y as of .

()) Asmaa consumes only t#o goods, and y. "er income doubles and the prices of the t#o goods remain unchanged. Assuming that she is a utility ma imi0er and li@es both goods, a. she #ill consume more of both goods. b. the ratio of her consumption of to y remains constant. c. her utility doubles. d. if her preferences are conve , she must consume more . e. <one of the above.

(*) Aihan consumes t#o commodities and y. "er utility function is min% + 2y, y + 2 &. She chooses to buy 1/ units of good and 2/ units of good y. 4he price of good is -...1. Aanets income is a. -...)/. b. -...*/. c. -...$/. d. -...2/. e. 4here is not enough information in the problem to determine her income as #e are not told the price of good y. (,) =halid has a utility function U ( A, B) ! A B, the price of apples is -...1, and the price of bananas is -...2. 'f =halids income #ere -...2)/, ho# many units of bananas #ould he consume if he chose the bundle that ma imi0ed his utility sub3ect to his budget constraint9 a. $/ b. 12 c. ,/ d. 15/ e. 12/ (1) 2oata0s utility function is U ( A, B) ! A B. 'f 2oata0s income is -...)/, the price of apples is -...$, and the price of bananas is -...*, ho# many apples are there in the best bundle that 2oata0 can afford9 a. 1$.$$ b. ; c. , d. 1 e. ,.,1 (5) Adams utility function is U( 1, 2) ! ) 11?2 + 2. 'f the price of nuts (good 1) is -...1, the price of stra#berries (good 2) is -...2, and his income is -...1)*, ho# many units of nuts #ill Adam choose9 a. , b. 1, c. $2 d. 1; e. 5
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(1) Atef consumes cocoa and cheese. Cocoa is sold in an unusual #ay. 4here is only one supplier, and the more cocoa you buy from him, the higher the price you have to pay per unit. 'n fact y units of cocoa #ill cost Casper y2 pounds. Cheese is sold in the usual #ay at a price of 2 pounds per unit. Atefs income is 2/ pounds and his utility function is U( , y) ! + 2y, #here is his consumption of cheese and y is his consumption of cocoa. a. S@etch Atefs budget set and shade it in. b. S@etch some of his indifference curves and label the point that he chooses. c. Calculate the amount of cheese and the amount of cocoa that Atef demands at these prices and this income. (2) Define the monotonic transformation of a utility function, sho#ing some e amples of monotnic transformation for some utility functions. ($) Discuss, using graphs, several e amples #here the optimal choice is represented by a boundary optimum, and others #here the optimal choice is an interior optimum.