EC201 - 2018 Exam Paper PDF

Preview

Summary

 LSE LT 2018/EC201 Page 1 of 2January 2018 examinationECMicroeconomic Principles I2017/8 syllabus only – not for resit candidatesInstructions to candidatesThis paper contains TWO SECTIONS. Section A contains TWO questions. Answer BOTH questions (worth 25 marks each). Section B contains ONE question...

Description

2017/8 syllabus only – not for resit candidates

This paper contains . Section A contains 25 marks each). Section B contains question. Answer

questions. Answer questions (worth question (worth 50 marks).

Candidates are advised not to spend a disproportionate amount of time on any one question.

LSE LT 2018/EC201

Page 1 of 2

: Answer BOTH questions (25 marks each). 1 An LSE student finds that computers and screens are perfect complements. She uses two screens with each computer. (a) If screens are good 1, , and computers are good 2, , give a formula for her utility function and show the indifference curves in a diagram. (b) Define uncompensated demand.

What is uncompensated demand a function of?

Find her uncompensated demand for screens and computers.

2 (a) Show in a diagram a household’s budget constraint if there are perfect capital markets, the household has income  at date  and  at date , and the interest rate is  . What is the gradient of the budget line? Where does the budget line meet the horizontal and vertical axes? (b) The interest rate increases from  to  . Show in your diagram how the budget line changes. Is it possible that the increase in the interest rate makes a saver worse off? Use income and substitution effects to discuss whether economic theory predicts that the household will save more at the higher interest rate.

: Answer THE question (50 marks).

3 (a)

Define compensated demand. What variables is compensated demand a function of?

(b)

Define the expenditure function. What variables is the expenditure function a function of? What is the relationship between compensated demand and the expenditure function?

(c) (d)

  A consumer has a utility function         . Prices are  , . Find compensated demand and the expenditure function.

Is it possible that compensated demand for a good increases when the price of the good increases? Explain your answer.

c LSE LT 2018/EC201

Page 2 of 2...