National University of Singapore EC3101 Microeconomic Analysis IT Semester 2 AY2014/2015 Time allowed: 2 hours INSTRUCTIONS ‘TO CANDIDATES. 1 This assosement paper contains FIVE (5) questions and comprises FIVE (6) printed pages. 2. Answer ALL questions in examination answer booklets. 8. Start each question on new page. 4 Be sure to put student number on the cover page of each booklet, 5. You may use nor-programmable calculators 6. This fs a Closed Book assessment. 1 / The total marks for this paper are 75.BO si0t Question 1 Suppose that wo aro in an aconomy with two individuals i=1,2 with identical wtlity functions wf(2,24) = taza". Suppose that agont 1 is endowed with x,=1, 2y=0 and agent 2s endowed with 210, 2-2. 4) At what price ratio wil prices clear in this market? Determine th alloction ‘inthis situation, (5 marks) 1) Prove that in ths sonemy, the pre ratio found in pact) wll clear the market segardess of the iil allocation as long as the total endowment stays the same, ‘What will the eontrsct eure look Wks? (10 marks) PAGE 1 OF 5Bo stot Question 2 ‘rank works as a constant. His income when young is $4000 (period 2) and $16000 when old (pariod 2). The intact rae ie 100%, 8) Ine graph, depict Prank's budget set. Mack all the bundles on the budget line that involve saving and the ones that involve borrowing, Find analytically PV and FV of income and show tn the graph, (# marks) 1) Frank's intartampont preferences are given by B(C1,02) = nC + pln, ‘where the discount parameter 6 ~ 100%. Find the optimal consumption plan (Cs, 3) ‘and ow much Hronk borrows or saws. (5 marks) 6) Is Frank smoothing his consumption? (2 marks) PAGE 2 OF 5